EUR/USD reached a 21-session high on Wednesday as US dollar bulls retreated. Democrats had strong election results and are set to control both the House and the Senate. Investors expect this to produce political gridlock, which could be bullish for the pair. It is still unclear how contentious the rest of President Donald Trump's term will be with the new Congress. For now, the market is leaning toward two years of gridlock.

Gridlock could weigh on the dollar and Treasury yields. Fiscal expansion, additional tax cuts and new funding issuance all could be less likely, and each of those could pressure the broader interest rate complex and dollar downward.

Democratic control also raises questions about AI expansion. Much of the recent US economic growth came from AI-related investment, so a slowdown there could slow the economy and add to dollar weakness. Investors might then expect a less hawkish Fed and price in fewer rate hikes, which would weigh on the dollar further. In that scenario, EUR/USD could erase much of its 2026 downtrend.

The daily technicals already suggest rising upside risk. The pair trades above its 10- and 21-day moving averages, and the daily RSI shows upward momentum. A double bottom is close to being confirmed. A break above 1.1270 would confirm the bottom and put the 1.1410/30 zone in focus.
eurusd

(Christopher Romano is a Reuters market analyst. The views expressed are his own)