Democrats are positioning themselves to take control of both chambers of Congress, potentially throwing a wrench into Donald Trump’s political and economic agenda. Such a shift could significantly affect Treasury issuance, US GDP growth, and the broader narrative of American exceptionalism. Let’s analyze the situation and develop a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Prediction markets are confident the Democrats will win.
- Treasury yields are falling.
- The loss of American exceptionalism is harmful to the dollar.
- Long positions can be considered if the price breaks through 1.1240.
Weekly Fundamental Forecast for Dollar
To achieve your goals, sometimes you have to lose power. It sounds paradoxical, but the US political landscape offers an interesting example. President Donald Trump sought to lower government borrowing costs and weaken the US dollar, but these objectives made little progress ahead of the midterm elections. However, as markets increasingly priced in the possibility of a blue wave, Treasury yields began to plunge, while the EUR/USD moved higher to test the upper boundary of its 1.1150–1.1240 consolidation range.
Probability of Democratic Victory
Source: Wall Street Journal.
The Democrats’ takeover of the House of Representatives appears increasingly likely. Over the past 24 hours, Polymarket has raised the probability of this outcome from 77% to 91%, while Kalshi has increased its estimate from 75% to 90%. Both prediction markets also assign a 75% probability to Democrats gaining control of the Senate. A Democratic-controlled Congress would likely create significant resistance to Donald Trump’s agenda of tax cuts and increased government spending. This could constrain the administration’s fiscal plans and put downward pressure on Treasury yields.
Another factor weighing on US borrowing costs is the prospect of an economic slowdown. First, tighter restrictions on data center construction under a Democratic-controlled Congress could undermine one of the economy’s key growth engines: investment in artificial intelligence infrastructure. Second, a looming debt-ceiling confrontation and the risk of another government shutdown could disrupt economic activity. Previous episodes of political gridlock and shutdowns have also weighed on GDP growth.
Falling Treasury yields, slowing economic growth, and a potential erosion of American exceptionalism amid a sell-off in technology stocks could put substantial pressure on the US dollar. The greenback may also lose an important source of support if oil prices retreat, reducing the tailwind from elevated energy prices.
US Dollar Performance and Brent Price
Source: TradingView.
Republicans are blaming their defeat in the midterm elections on the armed conflict in the Middle East. They argue that, without the conflict, oil prices would not have surged, inflation would not have accelerated, and the Fed would not have been forced to raise interest rates. Meanwhile, Donald Trump’s reported intention to cut military aid to Israel by $4 billion before the end of the year, rather than spread the reduction over the decade as originally planned, is being interpreted as further evidence that the US wants to disengage from the region as quickly as possible.
These developments are contributing to a continued decline in Brent crude prices, particularly as mediators actively propose a peaceful resolution to the conflict between Washington and Tehran. However, the situation is far from clear-cut. History offers a reminder that after Republicans lost control of Congress in the 2006 midterm elections, President Bush announced a troop surge in Iraq in early 2007. US forces did not complete their withdrawal until 2011.
Weekly Trading Plan for EUR/USD
The near-term outlook for the EUR/USD will hinge on whether bulls can break through the key resistance level at 1.1240. A sustained breakout would open the way for further gains toward 1.1300 and 1.1400. However, if buyers fail to overcome this barrier, the pair is likely to remain in its established consolidation range of 1.1150–1.1240.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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