Dollar Slides as Democrats Sweep Congress — EUR/USD Tests 1.1270 With the Bank of England Next
The US dollar fell across the board on Wednesday as midterm results confirmed Democrats had captured both chambers of Congress, and EUR/USD was one of the clearest beneficiaries. The pair climbed to a fresh two-week high above 1.1250 early in the day before retreating toward 1.1230, while the dollar index traded near 101.45, below its 101.535 level and its falling trendline. Sterling did even better: GBP/USD traded near 1.3459, its highest since September 16, ahead of Thursday's Bank of England decision. For forex traders, November 4 is a textbook case of politics moving currencies before any policy has actually changed — expectations, not legislation, are doing the work.
The dollar's slide has two drivers, and both showed up in the same morning. First, the election itself: a Democratic Congress in the final two years of President Trump's term raises uncertainty over fiscal policy, and markets priced that uncertainty into a weaker dollar and lower Treasury yields — the 2-year yield fell to a two-month low of 4.551%, and fed funds futures priced more easing. Second, the central-bank divergence trade: European Central Bank policymaker Joachim Nagel has said a December rate hike is very likely to be necessary, and the ECB held rates unchanged on October 29 with a data-dependent stance, while expectations for a Bank of England rate increase on Thursday supported sterling. When one central bank sounds hawkish and another faces political gridlock, the currency pair between them usually moves — and EUR/USD and GBP/USD both did.
The levels that matter now
For EUR/USD, the technical picture is a recovery testing a ceiling. The pair trades near 1.1233, with immediate support at 1.12249; a four-hour close above 1.12696 would confirm recovery potential toward the next resistance at 1.13150, while failure at the ceiling puts 1.11740 back in play, with 1.1210 and 1.1191 as the first levels to watch on a pullback. Other desks frame the same zone slightly differently — resistance at 1.1233/1.1252, support at 1.1173/1.1155 — but the message is the same: the pair is testing the lower edge of a resistance zone and the upper boundary of a descending channel, and a sustained break above it strengthens the rebound toward 1.1252, then 1.1270.
DXY (dollar index): near 101.45, below 101.535; a four-hour close below 101.180 would expose 100.873; reclaiming resistance weakens the bearish view.
EUR/USD: near 1.1233; support 1.12249, then 1.11740; resistance 1.12696, then 1.13150.
GBP/USD: near 1.3459, above 1.3434 support; a close above 1.3479 would open 1.3525 — but RSI near overbought warns of pullback risk before the Bank of England decision.
The warning sign: EUR/USD momentum looks stretched — RSI near 71 on short timeframes — so a pullback toward 1.12280 is more likely than a straight breakout unless the data surprises.
What could still change the story today
Three releases can still rewrite Wednesday's forex story. The eurozone's preliminary October inflation data — the Harmonized Index of Consumer Prices is expected to rise 4% year on year, following 3.8% in September — tests whether Nagel's hawkishness is justified; a hot print could push EUR/USD through 1.12616 and extend the rally toward 1.1250–1.1280, while a soft print would favour the pullback. From the US, the ADP employment report and the ISM Services PMI (forecast 54.8 versus a previous 54.9) test whether the American economy is cooling enough to justify the market's dovish repricing. And on Thursday, the Bank of England decision will decide whether sterling's run to its highest since September 16 has further to go or was borrowed from tomorrow's news.
For traders, the discipline here is the same as ever: a political result moves a currency fast, but it is the data and the central banks that decide whether the move sticks. EUR/USD above 1.12696 with a hot eurozone CPI print is a breakout; EUR/USD failing at 1.1250 with soft US data still to come is a range trade. Either way, position size matters more than prediction — midterm weeks are famous for reversals that punish traders who chase the first move. Related coverage includes the midterm-day forex story at https://zimbuck.com/blogs/1019/What-Markets-Were-Watching-on-Election-Day and the EUR/USD 1.1250 story at https://zimbuck.com/blogs/1083/EUR-USD-Rises-Toward-1-1250-as-Midterm-Uncertainty-Softens , with the dollar forecast at https://www.fxempire.com/forecasts/article/us-dollar-price-forecast-dxy-eyes-101-180-as-eur-usd-gbp-usd-rise-on-election-results-1642389 . Follow forex coverage on the Zimbuck News page at https://zimbuck.com/pages/zimbucknews and in the Zimbuck Market News group at https://zimbuck.com/groups/zimbuckmarketnews . Join the conversation on Zimbuck at https://zimbuck.com to say whether you see EUR/USD breaking 1.1270 — or pulling back to 1.1225 first.
FAQ
Why did the dollar fall on November 4? Democrats captured both chambers of Congress in the midterm elections, raising fiscal-policy uncertainty; the dollar index fell to near 101.45 and the 2-year Treasury yield hit a two-month low of 4.551% as markets priced more easing.
Where is EUR/USD now? Near 1.1233 after a fresh two-week high above 1.1250; support at 1.12249, resistance at 1.12696 then 1.13150. A four-hour close above 1.12696 would confirm the recovery.
Why is sterling strong? GBP/USD traded near 1.3459, its highest since September 16, on the broad dollar selloff plus expectations for a Bank of England rate increase on Thursday, November 5.
What is the ECB's stance? The ECB held rates unchanged on October 29 and remains data-dependent, but policymaker Joachim Nagel has said a December hike is very likely to be necessary — a hawkish signal supporting the euro.
What data could change the picture? Eurozone October CPI (expected 4% year on year, from 3.8%), US ADP employment and the ISM Services PMI (forecast 54.8), and Thursday's Bank of England decision.
This article is market news and general information only, not financial advice.
