LiteFinance
- Forex Broker al LiteFinance Global LLC
- Saint Vincent e Grenadine
- 933
The online ECN broker LiteFinance (ex. LiteForex) has been providing its clients access to Tier 1 liquidity in the currency, commodity, and stock market since 2005. All major currency pairs and cross rates, oil, precious metals, stock indexes, blue chips, and the largest set of cryptocurrency pairs can be traded at LiteFinance (ex. LiteForex).
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EUR/USD forecast: bulls won’t let the euro burst
Fundamental Euro forecast for today
Which bubble is bigger? The stock or the Forex market?
Market bubbles suggest rapidly rising prices, which attract the buyer hoping to earn quick money. Such buyers do not express due diligence or worry about the long-term prospects of what they buy. They ignore standard gauges as irrelevant, and the bubble goes bigger through cheap money. It looks familiar, doesn’t it? The rallies of the US stock indexes and the EUR/USD more and more look like a bubble. The bulls, however, do not let it burst.
It took S&P500 just 126 trading days to go back to February highs and hit a new record high. It is the fastest stocks rally after the bear market, which, by the way, had lasted for 33 days, with an average value of 302 of the previous 22 downtrends since the 1920s. Besides, the P/E of the stocks included in the index is 22.6. It is the highest value since the dot-com crisis. But the standard gauges are ignored in bubbles, aren’t they? The market is far from reality. The US economic state is hardly the same as it was in February.
The S&P500 rally has, for a long time, supported the EUR/USD bulls, but, now, they have different drivers. The stock indexes are growing amid the Fed’s support, which the euro is strengthening because of the GDP growth gap between the euro-area and the US. Remarkably, the volatility of the equity market and the Forex are now diverging. The US stocks are growing because of the cheap liquidity; the currency market is currently pricing the risks of the possibilities of the COVID-19 second wave in the euro area, the presidential election in the US, and the escalation of trade wars.
The EUR/USD rally may also look like a bubble. The net longs on the euro held by the asset managers are the highest ever. The euro-area economy was hit by the pandemic stronger than the US, and the yields on the European securities is still low. After all, everything is relative. While Steven Mnuchin claims that the negotiations between the Democrats and the republicans are stalled, the EU governments are quick to implement mitigation measures. The spread between US and German real yields is as narrow as it was in 2014 last time. The appeal of the US securities is falling, and that of the euro-area assets is growing. Isn’t it a reason to buy the euro?
According to Scotiabank, speculative dollar shorts are not excessive; they haven’t reached the level of 2017. The market has just started shorting on the greenback, so there is room to open more shorts. Société Générale notes, the US dollar’s rate, in real terms, is still 25% higher than the levels of 2011, and the Fed is still willing to depreciate the dollar. Is the EUR/USD a bubble? I do not think so. My strategy is to hold the euro longs and add up on the price falls. While the price is above 1.183, bulls control the market.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-bulls-wont-let-euro-burst/?uid=285861726&cid=79634
Fundamental Euro forecast for today
Which bubble is bigger? The stock or the Forex market?
Market bubbles suggest rapidly rising prices, which attract the buyer hoping to earn quick money. Such buyers do not express due diligence or worry about the long-term prospects of what they buy. They ignore standard gauges as irrelevant, and the bubble goes bigger through cheap money. It looks familiar, doesn’t it? The rallies of the US stock indexes and the EUR/USD more and more look like a bubble. The bulls, however, do not let it burst.
It took S&P500 just 126 trading days to go back to February highs and hit a new record high. It is the fastest stocks rally after the bear market, which, by the way, had lasted for 33 days, with an average value of 302 of the previous 22 downtrends since the 1920s. Besides, the P/E of the stocks included in the index is 22.6. It is the highest value since the dot-com crisis. But the standard gauges are ignored in bubbles, aren’t they? The market is far from reality. The US economic state is hardly the same as it was in February.
The S&P500 rally has, for a long time, supported the EUR/USD bulls, but, now, they have different drivers. The stock indexes are growing amid the Fed’s support, which the euro is strengthening because of the GDP growth gap between the euro-area and the US. Remarkably, the volatility of the equity market and the Forex are now diverging. The US stocks are growing because of the cheap liquidity; the currency market is currently pricing the risks of the possibilities of the COVID-19 second wave in the euro area, the presidential election in the US, and the escalation of trade wars.
The EUR/USD rally may also look like a bubble. The net longs on the euro held by the asset managers are the highest ever. The euro-area economy was hit by the pandemic stronger than the US, and the yields on the European securities is still low. After all, everything is relative. While Steven Mnuchin claims that the negotiations between the Democrats and the republicans are stalled, the EU governments are quick to implement mitigation measures. The spread between US and German real yields is as narrow as it was in 2014 last time. The appeal of the US securities is falling, and that of the euro-area assets is growing. Isn’t it a reason to buy the euro?
According to Scotiabank, speculative dollar shorts are not excessive; they haven’t reached the level of 2017. The market has just started shorting on the greenback, so there is room to open more shorts. Société Générale notes, the US dollar’s rate, in real terms, is still 25% higher than the levels of 2011, and the Fed is still willing to depreciate the dollar. Is the EUR/USD a bubble? I do not think so. My strategy is to hold the euro longs and add up on the price falls. While the price is above 1.183, bulls control the market.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-bulls-wont-let-euro-burst/?uid=285861726&cid=79634
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XAU/USD forecast: Gold market will face a turmoil
Fundamental gold price forecast for today
Coronavirus vaccines will hold XAU/USD bulls back
Mass gold sell-offs in the mid-August discouraged the gold bulls. However, a quick rebound above $2000 per ounce allowed large banks to resume their recommendations to buy. According to Credit Suisse forecasts, gold prices will grow to $2500 in 2021. Standard Chartered Bank believes investors will use any price decline to open long positions amid the weak dollar, low bond rates, and substantial fiscal stimuli. There are enough bulls in the gold market, and this fact alone raises concerns in the extended rally of the XAU/USD. Can there be turmoil?
Many bullish factors have already been priced in the XAUUSD, and there are not so many growth drivers left. I mean the long-term dollar weakness and the Fed’s willingness to put up with the inflation above its 2% target for as long as it is necessary. The problem is whether consumer prices will grow. The inflation level, expected by the bond market, returned to the January level in five years; but it is still below the Fed’s target. Inflation-adjusted five-year options suggest a little chance that the indicator will be above 3%. It is more likely to slide below 1%. The story of 2009-2011 can repeat in the gold market. Then, the gold price, having reached its all-time high, crashed, as investors didn’t nay more believe that the fiscal stimulus could accelerate the PCE.
In my opinion, the bond market can give a clue on the future gold trends. Gold price correlates with the Treasury Inflation-Protected Securities (TIPS). The increase in the TIPS yields on August 11-12 triggered an XAU/USD correction.
The gold rally takes place ahead of auctions and amid talks about the Russian vaccine. The more is fiscal stimulus, the more money needs Treasury. The initial public offering makes investors sell securities in the secondary market, which pushes up the yields. Taking into account vast scales of the state funding, such a situation could repeat, which increases the risks of instability in the gold market.
Still, the most significant danger for the gold buyers could result from good news about the COVID-19 vaccine. The Treasury yields are quite responsive to the pandemic. Positive information about vaccines will support the economy, but, at the same time, it will weigh on gold. Purchasing managers think the glass is half-full, and the continuous rally of the US PMI must support the growth of the global bond market rates.
Therefore, gold bulls still have two big advantages. They are the greenback weakness and the Fed’s willingness to put up with a high inflation rate. Nonetheless, unless the consumer price growth accelerates and the USD crashes, the XAU/USD will hardly continue to rally. On the contrary, an increase in the Treasury yields looks more likely, which suggests the relevance of the gold sales on the rise to $2050-2055 and $2130-2135.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/xauusd-forecast-gold-market-will-face-a-turmoil/?uid=285861726&cid=79634
Dynamics of gold and TIPS yields
Fundamental gold price forecast for today
Coronavirus vaccines will hold XAU/USD bulls back
Mass gold sell-offs in the mid-August discouraged the gold bulls. However, a quick rebound above $2000 per ounce allowed large banks to resume their recommendations to buy. According to Credit Suisse forecasts, gold prices will grow to $2500 in 2021. Standard Chartered Bank believes investors will use any price decline to open long positions amid the weak dollar, low bond rates, and substantial fiscal stimuli. There are enough bulls in the gold market, and this fact alone raises concerns in the extended rally of the XAU/USD. Can there be turmoil?
Many bullish factors have already been priced in the XAUUSD, and there are not so many growth drivers left. I mean the long-term dollar weakness and the Fed’s willingness to put up with the inflation above its 2% target for as long as it is necessary. The problem is whether consumer prices will grow. The inflation level, expected by the bond market, returned to the January level in five years; but it is still below the Fed’s target. Inflation-adjusted five-year options suggest a little chance that the indicator will be above 3%. It is more likely to slide below 1%. The story of 2009-2011 can repeat in the gold market. Then, the gold price, having reached its all-time high, crashed, as investors didn’t nay more believe that the fiscal stimulus could accelerate the PCE.
In my opinion, the bond market can give a clue on the future gold trends. Gold price correlates with the Treasury Inflation-Protected Securities (TIPS). The increase in the TIPS yields on August 11-12 triggered an XAU/USD correction.
The gold rally takes place ahead of auctions and amid talks about the Russian vaccine. The more is fiscal stimulus, the more money needs Treasury. The initial public offering makes investors sell securities in the secondary market, which pushes up the yields. Taking into account vast scales of the state funding, such a situation could repeat, which increases the risks of instability in the gold market.
Still, the most significant danger for the gold buyers could result from good news about the COVID-19 vaccine. The Treasury yields are quite responsive to the pandemic. Positive information about vaccines will support the economy, but, at the same time, it will weigh on gold. Purchasing managers think the glass is half-full, and the continuous rally of the US PMI must support the growth of the global bond market rates.
Therefore, gold bulls still have two big advantages. They are the greenback weakness and the Fed’s willingness to put up with a high inflation rate. Nonetheless, unless the consumer price growth accelerates and the USD crashes, the XAU/USD will hardly continue to rally. On the contrary, an increase in the Treasury yields looks more likely, which suggests the relevance of the gold sales on the rise to $2050-2055 and $2130-2135.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/xauusd-forecast-gold-market-will-face-a-turmoil/?uid=285861726&cid=79634
Dynamics of gold and TIPS yields
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Brent forecast: Oil has been trading in the corridor for too long
Oil price fundamental forecast for today
The longer lasts consolidation, the more likely is the trend to start
The longer consolidation lasts, the more likely is the trend start
Beginner traders like to join strong trends. Experienced traders know that it is more beneficial to monitor the assets that have been trading flat for a long time. The consolidation period will end sooner or later, being followed by new trends. The longer is the market trading in a narrow range, the more chances are that a sharp movement should start. With this regard, oil is quite a promising asset.
At first sight, the oil market should be moving down. The OPEC+ is gradually increasing oil production, international organizations lower their forecasts for oil global demand amid the difficult epidemiological situation in the US and the world. Besides, judging by the past experience, the US oil producers should be increasing the output as the prices grow. Unfortunately for the oil bears, the oil price is not falling. It is a reason to think that, if the market doesn’t go where it should, it is likely to go in the opposite direction.
To the surprise of many investors, the United States is the main reason for optimism. According to Baker Hughes data, the number of the US oil rig has dropped to the lowest level since 2005. It is the leading indicator of US oil production. According to The U.S. Energy Information Administration (EIA) forecasts, the US crude oil production will be 11.26 million barrels per day in 2020. It is far less than the production before the pandemic.
The US oil-producing companies have changed the strategy. Earlier, they increased crude oil production as the prices grew. Now, they prefer to pay off debts.
In addition to a decline in the US crude oil output, the US demand for oil and liquid fuels is surprisingly high (U.S. crude oil stocks are declining for the third consecutive week). Besides, the US dollar is weak. So, it is clear now why the tailwinds for oil are blowing from the USA.
As for the global demand, one shouldn’t fear the decline in the demand forecasts by the OPEC to 90.6 million barrels per day, and the IEA - to 91.9 million barrels per day. Both organizations take into account the growth in the number of COVID-19 cases in the USA. However, according to US domestic data, the US economy can adjust to it. Furthermore, once there had been reported that China is going to boost the purchases of the US energy products in the August-September period to meet the targets of the phase one trade deal, and the oil price immediately started growing.
In my opinion, the long-term outlook for the oil market is bullish. Sooner or later, the global economy will rebound, especially if there are coronavirus vaccines. The oil global demand will be also growing as the economy is recovering. As for global oil supply, even if the OPEC+ has increased crude oil production, it is far from the pre-crisis levels. Moreover, the US oil producers are out of the game. So, I recommend holding up the UKBrent longs entered at level $44 a barrel.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/brent-forecast-oil-has-been-trading-in-the-corridor-for-too-long/?uid=285861726&cid=79634
Oil price fundamental forecast for today
The longer lasts consolidation, the more likely is the trend to start
The longer consolidation lasts, the more likely is the trend start
Beginner traders like to join strong trends. Experienced traders know that it is more beneficial to monitor the assets that have been trading flat for a long time. The consolidation period will end sooner or later, being followed by new trends. The longer is the market trading in a narrow range, the more chances are that a sharp movement should start. With this regard, oil is quite a promising asset.
At first sight, the oil market should be moving down. The OPEC+ is gradually increasing oil production, international organizations lower their forecasts for oil global demand amid the difficult epidemiological situation in the US and the world. Besides, judging by the past experience, the US oil producers should be increasing the output as the prices grow. Unfortunately for the oil bears, the oil price is not falling. It is a reason to think that, if the market doesn’t go where it should, it is likely to go in the opposite direction.
To the surprise of many investors, the United States is the main reason for optimism. According to Baker Hughes data, the number of the US oil rig has dropped to the lowest level since 2005. It is the leading indicator of US oil production. According to The U.S. Energy Information Administration (EIA) forecasts, the US crude oil production will be 11.26 million barrels per day in 2020. It is far less than the production before the pandemic.
The US oil-producing companies have changed the strategy. Earlier, they increased crude oil production as the prices grew. Now, they prefer to pay off debts.
In addition to a decline in the US crude oil output, the US demand for oil and liquid fuels is surprisingly high (U.S. crude oil stocks are declining for the third consecutive week). Besides, the US dollar is weak. So, it is clear now why the tailwinds for oil are blowing from the USA.
As for the global demand, one shouldn’t fear the decline in the demand forecasts by the OPEC to 90.6 million barrels per day, and the IEA - to 91.9 million barrels per day. Both organizations take into account the growth in the number of COVID-19 cases in the USA. However, according to US domestic data, the US economy can adjust to it. Furthermore, once there had been reported that China is going to boost the purchases of the US energy products in the August-September period to meet the targets of the phase one trade deal, and the oil price immediately started growing.
In my opinion, the long-term outlook for the oil market is bullish. Sooner or later, the global economy will rebound, especially if there are coronavirus vaccines. The oil global demand will be also growing as the economy is recovering. As for global oil supply, even if the OPEC+ has increased crude oil production, it is far from the pre-crisis levels. Moreover, the US oil producers are out of the game. So, I recommend holding up the UKBrent longs entered at level $44 a barrel.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/brent-forecast-oil-has-been-trading-in-the-corridor-for-too-long/?uid=285861726&cid=79634
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EUR/USD forecast: Dollar multiplies predators
Fundamental U.S. dollar forecast for today
The only way to survive for an economy is to adapt to the pandemic
The more prey, the more predators. The increase in the number of predators reduces the population of prey, which, in turn, reduces the population of predators. The interaction of a pandemic and the economy is similar to the laws of nature, with the virus being the predator and the economy being the prey. The only way for the economy to survive is to adapt. It is difficult without a coronavirus vaccine. It may be proven by the drop in the U.S. unemployment claims below 1 million, which supports the US dollar.
Despite a positive reading, the US jobs market is far from the norm. Over the past three months, the economy has created 9 million new jobs, but this is only 43% of the 21 million lost in the March-April period. The number of Americans collecting unemployment benefits through regular state programs also decreased from 25 million to 15.5 million. However, this is more than two times more than the maximum recorded during the previous global financial crisis (6.6 million). The US jobs market urgently needs a fresh fiscal stimulus, but the Republicans and the Democrats can’t reach an agreement.
Donald Trump says too much aid package will keep Americans from returning to jobs. 82% of 62 experts polled by the Wall Street Journal do not agree. They say additional payments to unemployment benefits do the economy more good than harm, as they support consumer demand. The U.S. President doesn’t agree. Trump argues with the Democrats, linking the fiscal stimulus size with the canceling voting by mail in the 2020 presidential election.
The red-line policy influences all financial markets. Trump won’t benefit from a new round of the US-China trade war, as it would demonstrate that he has not achieved any progress in this area during his four years in power. Joe Biden says Trump’s policy concerning China is a failure. Trump wouldn’t support his opponent. Besides, the stock indexes, which indicate the efficiency of Trump’s policy, are likely to drop if the US imposes new import tariffs against China. China doesn’t fulfill its obligations under the phase 1 trade deal in full. But Beijing has an excuse, the pandemic. Everything can be improved. In 2021.
The escalation of the trade war would seriously hit the Chinese economy, whose recovery pace is slowing down. The domestic demand doesn’t meet the industrial production, which is indicated by a poor reading of China’s retail sales data in July.
China could be an example of an economy adapts to the pandemic. The fact that it has problems suggests that the euro-area economy may also recover not as soon as the EUR/USD bulls expect. Unless the pair breaks out the resistance at 1.188, it can enter the middle-term consolidation in the range of 1.158-1.188.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-multiplies-predators/ ?uid=285861726&cid=79634
Fundamental U.S. dollar forecast for today
The only way to survive for an economy is to adapt to the pandemic
The more prey, the more predators. The increase in the number of predators reduces the population of prey, which, in turn, reduces the population of predators. The interaction of a pandemic and the economy is similar to the laws of nature, with the virus being the predator and the economy being the prey. The only way for the economy to survive is to adapt. It is difficult without a coronavirus vaccine. It may be proven by the drop in the U.S. unemployment claims below 1 million, which supports the US dollar.
Despite a positive reading, the US jobs market is far from the norm. Over the past three months, the economy has created 9 million new jobs, but this is only 43% of the 21 million lost in the March-April period. The number of Americans collecting unemployment benefits through regular state programs also decreased from 25 million to 15.5 million. However, this is more than two times more than the maximum recorded during the previous global financial crisis (6.6 million). The US jobs market urgently needs a fresh fiscal stimulus, but the Republicans and the Democrats can’t reach an agreement.
Donald Trump says too much aid package will keep Americans from returning to jobs. 82% of 62 experts polled by the Wall Street Journal do not agree. They say additional payments to unemployment benefits do the economy more good than harm, as they support consumer demand. The U.S. President doesn’t agree. Trump argues with the Democrats, linking the fiscal stimulus size with the canceling voting by mail in the 2020 presidential election.
The red-line policy influences all financial markets. Trump won’t benefit from a new round of the US-China trade war, as it would demonstrate that he has not achieved any progress in this area during his four years in power. Joe Biden says Trump’s policy concerning China is a failure. Trump wouldn’t support his opponent. Besides, the stock indexes, which indicate the efficiency of Trump’s policy, are likely to drop if the US imposes new import tariffs against China. China doesn’t fulfill its obligations under the phase 1 trade deal in full. But Beijing has an excuse, the pandemic. Everything can be improved. In 2021.
The escalation of the trade war would seriously hit the Chinese economy, whose recovery pace is slowing down. The domestic demand doesn’t meet the industrial production, which is indicated by a poor reading of China’s retail sales data in July.
China could be an example of an economy adapts to the pandemic. The fact that it has problems suggests that the euro-area economy may also recover not as soon as the EUR/USD bulls expect. Unless the pair breaks out the resistance at 1.188, it can enter the middle-term consolidation in the range of 1.158-1.188.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-multiplies-predators/ ?uid=285861726&cid=79634
LiteFinance
GBP/USD forecast: Pound caught tailwinds
Fundamental Pound forecast for today
The GBP/USD rally results from the U.S. dollar weakness
Unsinkable. That is how I can describe the pound, which didn’t crash even amid the worst GDP drop and the strongest decline in unemployment since the previous economic crisis. After all, there is not any storm in the Forex market, is it? The sterling may just follow the trend based on the massive selloffs of the U.S. dollar. According to Societe Generale, the GBP/USD rally results from the greenback’s weakness, rather than from the UK economic data, which are rather weak. I must agree.
In the second quarter, the UK GDP contracted by 20.4%, which, compared to the USA (-10%), Germany (-10%), Italy (-12%), France (-14%), and Spain (-19%), looks like a real disaster. Partially, such serious economic losses resulted from the time factor. The UK economy was locked down on March 23, a week before most European countries, and reopened a few weeks later than the others.
In June, the UK economy grew by 8.7% M-o-M, which means it was 11.3% from the lows recorded in March. However, the current GDP is 17.2% than the pre-crisis levels, and the further recovery, according to the Bank of England, will depend on the employment. UK employment shrank by 220,000 during the lockdown, but the unemployment rate remained at 3.9% in the April-June period, which can be explained by state support. Rishi Sunak spent about £35 billion for this purpose, which saved about 9.5 million jobs. However, the financial aid program expires in October, and Boris Johnson’s government will face a serious dilemma.
If the fiscal stimulus is not extended, the unemployment rate will surge holding back the economic recovery. Besides, the U.K. government debt will increase, and the firms will have more symptoms associated with “zombies”. According to Prospect Magazine, the first option is more beneficial, as job destruction and job creation is a necessary part of a dynamic economy.
In my opinion, the GBP/USD remains stable amid the UK poor domestic data because investors expected the worst. The recession is deep, but the pound’s future will depend on how fast the UK economy is recovering. Extra problems can be created by Brexit, but the talks about the progress in the UK-US trade negotiations ease the negative.
The market is tending to sell the greenback amid its weakness. Republicans and Democrats may not reach an agreement on the fiscal stimulus until September. Besides, the weak economic data resulted from the surge in COVID-19 cases in the middle of summer will sooner or later press the USD down. As a result, the GBP/USD bulls can be supported by too grim forecasts for the UK economy. Any positive signs in the UK economic data will allow to add up to the GBP purchases opened at level 1.302 at the breakouts of the resistances at 1.3135 and 1.319.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/gbpusd-forecast-pound-caught-tailwinds/?uid=285861726&cid=79634
Fundamental Pound forecast for today
The GBP/USD rally results from the U.S. dollar weakness
Unsinkable. That is how I can describe the pound, which didn’t crash even amid the worst GDP drop and the strongest decline in unemployment since the previous economic crisis. After all, there is not any storm in the Forex market, is it? The sterling may just follow the trend based on the massive selloffs of the U.S. dollar. According to Societe Generale, the GBP/USD rally results from the greenback’s weakness, rather than from the UK economic data, which are rather weak. I must agree.
In the second quarter, the UK GDP contracted by 20.4%, which, compared to the USA (-10%), Germany (-10%), Italy (-12%), France (-14%), and Spain (-19%), looks like a real disaster. Partially, such serious economic losses resulted from the time factor. The UK economy was locked down on March 23, a week before most European countries, and reopened a few weeks later than the others.
In June, the UK economy grew by 8.7% M-o-M, which means it was 11.3% from the lows recorded in March. However, the current GDP is 17.2% than the pre-crisis levels, and the further recovery, according to the Bank of England, will depend on the employment. UK employment shrank by 220,000 during the lockdown, but the unemployment rate remained at 3.9% in the April-June period, which can be explained by state support. Rishi Sunak spent about £35 billion for this purpose, which saved about 9.5 million jobs. However, the financial aid program expires in October, and Boris Johnson’s government will face a serious dilemma.
If the fiscal stimulus is not extended, the unemployment rate will surge holding back the economic recovery. Besides, the U.K. government debt will increase, and the firms will have more symptoms associated with “zombies”. According to Prospect Magazine, the first option is more beneficial, as job destruction and job creation is a necessary part of a dynamic economy.
In my opinion, the GBP/USD remains stable amid the UK poor domestic data because investors expected the worst. The recession is deep, but the pound’s future will depend on how fast the UK economy is recovering. Extra problems can be created by Brexit, but the talks about the progress in the UK-US trade negotiations ease the negative.
The market is tending to sell the greenback amid its weakness. Republicans and Democrats may not reach an agreement on the fiscal stimulus until September. Besides, the weak economic data resulted from the surge in COVID-19 cases in the middle of summer will sooner or later press the USD down. As a result, the GBP/USD bulls can be supported by too grim forecasts for the UK economy. Any positive signs in the UK economic data will allow to add up to the GBP purchases opened at level 1.302 at the breakouts of the resistances at 1.3135 and 1.319.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/gbpusd-forecast-pound-caught-tailwinds/?uid=285861726&cid=79634
LiteFinance
Fundamental U.S. dollar forecast for today
Fundamental U.S. dollar forecast for today
The major currency pair is about to start consolidation
Over the past four months, investors have been selling off the dollar, which seemed to have lost its profitability, against the world major currencies. The speculative net dollar shorts have reached the highest levels, and hedge funds have opened euro long positions the first time over the past two years. The market is confident that the EUR/USD will be trading at 1.2 sooner or later. What if it is wrong? The dollar may still gain its strength back.
As the greenback shorts are close to the highest levels, there can well start a correction. Few large banks and investment companies believe that the USD uptrend can resume soon, however, the EUR/USD correction down may be rather deep.
HSBC says the EUR/USD bulls set the reasons for the further euro rally that have already worked out. Yes, the Fed lowered the interest rates more aggressively than the ECB, which sent the Treasury yield to the all-time lows. However, the ECB just couldn’t afford it. The ECB tool-kit is limited, as its interest rates are already close to zero. Yes, the Treasury yield has dropped, but will it go lower? Few believe that the FOMC will introduce negative interest rates. Even if it does, the US bond market rates are likely to have hit the bottom. The surge of the 10-year Treasury yield on August 10-11 has supported the US dollar, sending the gold price down.
The idea of the growth gap between the U.S. and the euro-area looks appealing. However, the number of new COVID-19 cases in the USA starts declining, while it is increasing in some European regions. Furthermore, the US positive domestic data signal that the second coronavirus wave shouldn’t be as harmful to the US economy as the first one. When the forecasts for the US GDP are grim, and the euro-area growth, on the contrary, is expected to accelerate, any mismatches to the forecasts can encourage investors to sell off the EUR/USD.
Moreover, the greenback has been seasonally strong in the second half of the year also because of the capital repatriation to the USA. The USD grew on average by 3% in the quarter ahead of the seven previous presidential elections. So, there should be even less confidence that the euro uptrend will soon resume.
I believe such factors as the diversification of the global FX reserves in the favor of the euro and inflow of portfolio investments into the euro-area markets should support the euro uptrend in the future. In the meanwhile, traders should be prepared for the EUR/USD middle-term consolidation in the range of 1.158-1.188. The scenario to buy at the support levels of 1.166 and 1.163 is still relevant. However, the euro bulls should be patent and focus on day-trading with narrow targets for a while.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/fundamental-us-dollar-forecast-for-today/?uid=285861726&cid=79634
Seasonal factor in USD average monthly changes
Fundamental U.S. dollar forecast for today
The major currency pair is about to start consolidation
Over the past four months, investors have been selling off the dollar, which seemed to have lost its profitability, against the world major currencies. The speculative net dollar shorts have reached the highest levels, and hedge funds have opened euro long positions the first time over the past two years. The market is confident that the EUR/USD will be trading at 1.2 sooner or later. What if it is wrong? The dollar may still gain its strength back.
As the greenback shorts are close to the highest levels, there can well start a correction. Few large banks and investment companies believe that the USD uptrend can resume soon, however, the EUR/USD correction down may be rather deep.
HSBC says the EUR/USD bulls set the reasons for the further euro rally that have already worked out. Yes, the Fed lowered the interest rates more aggressively than the ECB, which sent the Treasury yield to the all-time lows. However, the ECB just couldn’t afford it. The ECB tool-kit is limited, as its interest rates are already close to zero. Yes, the Treasury yield has dropped, but will it go lower? Few believe that the FOMC will introduce negative interest rates. Even if it does, the US bond market rates are likely to have hit the bottom. The surge of the 10-year Treasury yield on August 10-11 has supported the US dollar, sending the gold price down.
The idea of the growth gap between the U.S. and the euro-area looks appealing. However, the number of new COVID-19 cases in the USA starts declining, while it is increasing in some European regions. Furthermore, the US positive domestic data signal that the second coronavirus wave shouldn’t be as harmful to the US economy as the first one. When the forecasts for the US GDP are grim, and the euro-area growth, on the contrary, is expected to accelerate, any mismatches to the forecasts can encourage investors to sell off the EUR/USD.
Moreover, the greenback has been seasonally strong in the second half of the year also because of the capital repatriation to the USA. The USD grew on average by 3% in the quarter ahead of the seven previous presidential elections. So, there should be even less confidence that the euro uptrend will soon resume.
I believe such factors as the diversification of the global FX reserves in the favor of the euro and inflow of portfolio investments into the euro-area markets should support the euro uptrend in the future. In the meanwhile, traders should be prepared for the EUR/USD middle-term consolidation in the range of 1.158-1.188. The scenario to buy at the support levels of 1.166 and 1.163 is still relevant. However, the euro bulls should be patent and focus on day-trading with narrow targets for a while.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/fundamental-us-dollar-forecast-for-today/?uid=285861726&cid=79634
Seasonal factor in USD average monthly changes
LiteFinance
EUR/USD forecast: Dollar should survive before it thrives
Fundamental U.S. dollar forecast for today
Investors do not believe in the U.S. economy and sell off the U.S. dollar
When the U.S. economy looks like a bubble, the dollar can’t but fall. Investors have not been confused by the biggest rise of the U.S. manufacturing PMI since February 2019. The U.S. employment in the private sector added 165,000 jobs in July, sharply missing expectations of more than 1 million new jobs. The number of jobless claims, according to the experts polled by the Wall Street Journal, should continue rising. When people had money granted by the government, they spent it. Now, they have run out of money. Democrats and Republicans can’t reach an agreement on the extra financial aid package, and this is a big problem.
The $600 unemployment boost expired on July 31. It will result in a sharp decline in household spending and a slowdown in the U.S. GDP recovery. In the middle of summer, over 12 million people received benefits, which allowed them to pay rent, utilities, auto, and other loans. Now, financial aid has finished, and the debts continue growing.
The unemployment benefits, supporting consumer spending, is only the tip of the iceberg. The US labor market is weak, which kills the hope for the V-shaped GDP rebound. According to the poll of the National Federation of Independent Business, about 20% of firms plan to lay off workers after using the loans from the Paycheck Protection Program. According to Cornell University, one in four workers, recruited back through the program, received a notice that they could be fired again.
The grim outlook of the U.S. economy contrasts with the confidence in a soon rebound of the euro-area GDP, which is signaled by the euro-area PMI report, which is stronger than the flash data.
According to the Societe Generale, there is no doubt the dollar has made a cyclical turn now and should continue falling amid the current Fed’s monetary policy stance and the outlook for the U.S. growth over the next few years. 33 of 62 experts surveyed by Reuters said the USD bear trend would continue for at least another six months. 15 analysts, said it would be less than six months. While 11 said it would be less than three months, just three respondents said it was already over. The consensus view suggests the EUR/USD will be trading at 1.18 in August 2021, which is the highest in a year.
In my opinion, the market is too fast. It starts pricing the weak data on the U.S. nonfarm payrolls in July. As a result, volatility risks are growing. The euro could grow first, and, next, it could fall even faster, as big traders should be exiting longs. However, we should see the publication of the U.S. jobless claims data, which can push the EUR/USD up above 1.192. I recommend holding the long positions opened at level 1.173 and preparing for exiting a part of trades.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-should-survive-before-it-thrives/?uid=285861726&cid=79634
Dynamics of U.S. employment
Fundamental U.S. dollar forecast for today
Investors do not believe in the U.S. economy and sell off the U.S. dollar
When the U.S. economy looks like a bubble, the dollar can’t but fall. Investors have not been confused by the biggest rise of the U.S. manufacturing PMI since February 2019. The U.S. employment in the private sector added 165,000 jobs in July, sharply missing expectations of more than 1 million new jobs. The number of jobless claims, according to the experts polled by the Wall Street Journal, should continue rising. When people had money granted by the government, they spent it. Now, they have run out of money. Democrats and Republicans can’t reach an agreement on the extra financial aid package, and this is a big problem.
The $600 unemployment boost expired on July 31. It will result in a sharp decline in household spending and a slowdown in the U.S. GDP recovery. In the middle of summer, over 12 million people received benefits, which allowed them to pay rent, utilities, auto, and other loans. Now, financial aid has finished, and the debts continue growing.
The unemployment benefits, supporting consumer spending, is only the tip of the iceberg. The US labor market is weak, which kills the hope for the V-shaped GDP rebound. According to the poll of the National Federation of Independent Business, about 20% of firms plan to lay off workers after using the loans from the Paycheck Protection Program. According to Cornell University, one in four workers, recruited back through the program, received a notice that they could be fired again.
The grim outlook of the U.S. economy contrasts with the confidence in a soon rebound of the euro-area GDP, which is signaled by the euro-area PMI report, which is stronger than the flash data.
According to the Societe Generale, there is no doubt the dollar has made a cyclical turn now and should continue falling amid the current Fed’s monetary policy stance and the outlook for the U.S. growth over the next few years. 33 of 62 experts surveyed by Reuters said the USD bear trend would continue for at least another six months. 15 analysts, said it would be less than six months. While 11 said it would be less than three months, just three respondents said it was already over. The consensus view suggests the EUR/USD will be trading at 1.18 in August 2021, which is the highest in a year.
In my opinion, the market is too fast. It starts pricing the weak data on the U.S. nonfarm payrolls in July. As a result, volatility risks are growing. The euro could grow first, and, next, it could fall even faster, as big traders should be exiting longs. However, we should see the publication of the U.S. jobless claims data, which can push the EUR/USD up above 1.192. I recommend holding the long positions opened at level 1.173 and preparing for exiting a part of trades.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-should-survive-before-it-thrives/?uid=285861726&cid=79634
Dynamics of U.S. employment
LiteFinance
Forecast for XAU/USD: Gold churns out records
Fundamental forecast for gold for today
Precious metal climbed too high
It’s done! What gold bugs had been dreaming about for decades happened: the price has reached a level of $2,000 per ounce. The weakness of the US dollar, the fall of the 10-year U.S. Bond yield to unbelievable minus 1%, and unstoppable growth of ETF reserves did their work. Meanwhile, gold bugs grew much older: according to JP Morgan’s research, the precious metal is usually bought by aged investors, while young traders prefer Bitcoin or high-tech stocks.
Many may find it surprising that gold is growing amidst the rally of US stock indexes. That often happens during recessions, though: enormous volumes of central banks’ cheap liquidity allow investors to build up long positions in risky and reliable assets. What’s more, the market prefers precious metals when it’s unsure about GDP’s recovery.
Even if gold climbed high, there are still a lot of bullish forecasts: Goldman Sachs believes that the prices may go up to $2300 per ounce because investors are looking for a new reserve currency; RBC Capital Markets projects a level of $3,000.
XAU/USD bulls may have succeeded because the recession didn’t follow the 2007-2009 scenario. Then, the Fed’s monetary stimuli were enough for getting the economy back to the trend; now, it’s unclear. Then, the USD was growing as the US GDP’s recovery rate was faster than its global peers’ one; now, it’s falling amidst the economic divergence of growth. Then, the idea that inflation would speed up amidst increased money supply failed; now, it’s still alive. The difference between then and now allows us to say that gold hasn’t stop rallying yet.
The best scenario for gold would be a W-shape recovery of the US economy. It implies extending monetary and fiscal stimuli, further weakening the USD, and a drop in real US bond yields. However, a V-shape recovery of GDP will allow XAU/USD quotes to grow too. A long-term downtrend of the USD index is doubtless. At the same time, the Fed makes it clear that it’s ready to tolerate high inflation, which will raise the bond market rates.
The second coronavirus wave in Europe is the main factor in the development of the bullish scenario for gold. Under this scenario, the euro will fall, the USD index will grow and will probably continue growing as the divergence of economic growth will benefit the USA. That scenario is unlikely to happen. So, hold your long positions formed at $1820-1825 per ounce and build them up during retracements. XAU/USD may correct on the Congress’s approval of a new fiscal relief package and strong stats on the US labor market.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-xauusd-gold-churns-out-records/ ?uid=285861726&cid=79634
Gold and expected inflation dynamics
Fundamental forecast for gold for today
Precious metal climbed too high
It’s done! What gold bugs had been dreaming about for decades happened: the price has reached a level of $2,000 per ounce. The weakness of the US dollar, the fall of the 10-year U.S. Bond yield to unbelievable minus 1%, and unstoppable growth of ETF reserves did their work. Meanwhile, gold bugs grew much older: according to JP Morgan’s research, the precious metal is usually bought by aged investors, while young traders prefer Bitcoin or high-tech stocks.
Many may find it surprising that gold is growing amidst the rally of US stock indexes. That often happens during recessions, though: enormous volumes of central banks’ cheap liquidity allow investors to build up long positions in risky and reliable assets. What’s more, the market prefers precious metals when it’s unsure about GDP’s recovery.
Even if gold climbed high, there are still a lot of bullish forecasts: Goldman Sachs believes that the prices may go up to $2300 per ounce because investors are looking for a new reserve currency; RBC Capital Markets projects a level of $3,000.
XAU/USD bulls may have succeeded because the recession didn’t follow the 2007-2009 scenario. Then, the Fed’s monetary stimuli were enough for getting the economy back to the trend; now, it’s unclear. Then, the USD was growing as the US GDP’s recovery rate was faster than its global peers’ one; now, it’s falling amidst the economic divergence of growth. Then, the idea that inflation would speed up amidst increased money supply failed; now, it’s still alive. The difference between then and now allows us to say that gold hasn’t stop rallying yet.
The best scenario for gold would be a W-shape recovery of the US economy. It implies extending monetary and fiscal stimuli, further weakening the USD, and a drop in real US bond yields. However, a V-shape recovery of GDP will allow XAU/USD quotes to grow too. A long-term downtrend of the USD index is doubtless. At the same time, the Fed makes it clear that it’s ready to tolerate high inflation, which will raise the bond market rates.
The second coronavirus wave in Europe is the main factor in the development of the bullish scenario for gold. Under this scenario, the euro will fall, the USD index will grow and will probably continue growing as the divergence of economic growth will benefit the USA. That scenario is unlikely to happen. So, hold your long positions formed at $1820-1825 per ounce and build them up during retracements. XAU/USD may correct on the Congress’s approval of a new fiscal relief package and strong stats on the US labor market.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-xauusd-gold-churns-out-records/ ?uid=285861726&cid=79634
Gold and expected inflation dynamics
LiteFinance
EUR/USD forecast: Poor management will kill dollar
Fundamental U.S. dollar forecast for today
EUR/USD pair is being corrected, but the euro uptrend is strong
You can take all my factories, all my capital, everything I have from me. But leave me five of my best managers, and before you know it, I’ll be ahead of everyone else again. One of the richest men of the 19th century, Andrew Carnegie, was right. Success in business depends on efficient management. Forex trading is also a business. The strength of a currency is determined also by efficient management. The euro-area used to envy the USA that could afford to redistribute financial resources from strong states to weak ones. Only the pandemic has forced the EU to abandon the principle “at court everyone is for himself.” It has immediately influenced the EUR/USD.
In the modern world, a bet on a currency is a bet on the control over the coronavirus. However, Congress failed to agree on the extension of the program of weekly unemployment benefits that officially expired on July 31, leaving more than 25 million people without support. In Europe, however, the rich North provides aid for the poor South. So, the management in the euro-area seems to be more effective. Financial analysts suggest that poor management could kill the US dollar.
In August, the USD index has featured the worst drop over almost two years. The bear speculative sentiment in the derivatives market is as strong as in April 2018.
As I suggested earlier, weak data on European GDPs triggered the EUR/USD correction. However, amid the divergence in the epidemiological environment, the euro-area economy is likely to recover sooner than the US growth. Federal Reserve Bank of Minneapolis President Neel Kashkari has even suggested a fresh lockdown for 4 – 6 weeks. Allegedly, the US Congress can afford it.
The euro-area GDP in the April-May period fell by 40.3% on an annual basis, which, compared with the same period of 2019, seems to be a more dramatic drop than the US GDP drop by 32.9%. However, population support programs will continue in 2021; the worst-affected regions, including Italy, performed better than expected. The control over the coronavirus relieves fear, which is a key factor in the economic recovery trend.
Of course, there are many problems in the euro area. The European economy is much dependent on exports and tourism, which makes foreign demand a very important factor. Under the current conditions, it could slow down the economic recovery. Besides, the number of coronavirus cases has increased amid the end of the lockdown in some parts of the region, including Spain.
The epidemiological situation in the US is difficult, the management is poor. Besides, the US even now, when all the countries try to unite to solve a common problem, continues its attacks on China trying to please the ambitions of the White House. All these factors support the idea of the strong EUR/USD uptrend. It makes sense to use the drawdowns to 1.173, 1.168, and 1.162 to enter long-term purchases.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-poor-management-will-kill-dollar/?uid=285861726&cid=79634
Dynamics of European GDPs
Fundamental U.S. dollar forecast for today
EUR/USD pair is being corrected, but the euro uptrend is strong
You can take all my factories, all my capital, everything I have from me. But leave me five of my best managers, and before you know it, I’ll be ahead of everyone else again. One of the richest men of the 19th century, Andrew Carnegie, was right. Success in business depends on efficient management. Forex trading is also a business. The strength of a currency is determined also by efficient management. The euro-area used to envy the USA that could afford to redistribute financial resources from strong states to weak ones. Only the pandemic has forced the EU to abandon the principle “at court everyone is for himself.” It has immediately influenced the EUR/USD.
In the modern world, a bet on a currency is a bet on the control over the coronavirus. However, Congress failed to agree on the extension of the program of weekly unemployment benefits that officially expired on July 31, leaving more than 25 million people without support. In Europe, however, the rich North provides aid for the poor South. So, the management in the euro-area seems to be more effective. Financial analysts suggest that poor management could kill the US dollar.
In August, the USD index has featured the worst drop over almost two years. The bear speculative sentiment in the derivatives market is as strong as in April 2018.
As I suggested earlier, weak data on European GDPs triggered the EUR/USD correction. However, amid the divergence in the epidemiological environment, the euro-area economy is likely to recover sooner than the US growth. Federal Reserve Bank of Minneapolis President Neel Kashkari has even suggested a fresh lockdown for 4 – 6 weeks. Allegedly, the US Congress can afford it.
The euro-area GDP in the April-May period fell by 40.3% on an annual basis, which, compared with the same period of 2019, seems to be a more dramatic drop than the US GDP drop by 32.9%. However, population support programs will continue in 2021; the worst-affected regions, including Italy, performed better than expected. The control over the coronavirus relieves fear, which is a key factor in the economic recovery trend.
Of course, there are many problems in the euro area. The European economy is much dependent on exports and tourism, which makes foreign demand a very important factor. Under the current conditions, it could slow down the economic recovery. Besides, the number of coronavirus cases has increased amid the end of the lockdown in some parts of the region, including Spain.
The epidemiological situation in the US is difficult, the management is poor. Besides, the US even now, when all the countries try to unite to solve a common problem, continues its attacks on China trying to please the ambitions of the White House. All these factors support the idea of the strong EUR/USD uptrend. It makes sense to use the drawdowns to 1.173, 1.168, and 1.162 to enter long-term purchases.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-poor-management-will-kill-dollar/?uid=285861726&cid=79634
Dynamics of European GDPs
LiteFinance
Forecast for EUR/USD: Dollar lost its nerves
Fundamental forecast for dollar for today
Donald Trump eclipses US macrostatistics again
If Donald Trump hadn’t lost his nerves, EUR/USD bears could have prevented the attack of their opponents following the publication of statistics on the US GDP and jobless claims. The US president suggested the November presidential election be postponed until people can vote properly and safely. Asking to a question during his press conference later on, he replied: “Do I want to see a date change? No. But I don’t want to see a crooked election”. Politics has always been a negative factor for the greenback. The euro had a new impulse to rally on the early interference of the political factor.
According to Deutsche Bank, all that potentially delays a smooth transition of power is a source of uncertainty for dollar assets and negatively affects the US currency. The election will hardly be delayed as it’s the power of Congress. The Republican leaders didn’t welcome Trump’s suggestion but they can be contested. If the current president loses, the risk of such a scenario will increase.
The president’s tweets eclipsed the US economy’s worst drawdown since 1940 (minus 32.9%) and growth of jobless claims to 1.43 million. We can say goodbye to a V-shape recovery of GDP. The States’ situation is extremely bad: the fear of infection decreases economic activity, the unemployment rate is growing and a fiscal stimulus package cut reduces consumer spending. However, these factors aren’t new and they have already been considered in EUR/USD.
Statistics on the German GDP turned out worse than expected (-10.1% q/q). Still, Goldman Sachs believes Europe’s economic growth will outrun the US in 2020 due to a better local control over the virus, better macro-indicators and a better package of monetary and fiscal stimuli. JP Morgan forecasts that Germany’s GDP will drop 4.3% this year and will exceed its pre-crisis level in 2021. Its American peer will have been 2.5% less than the pre-pandemic value by the end of the next year after its 5.2% reduction in 2020.
Covid dictates to both economy and politics. A new series of US downbeat statistics may draw the economic surprise index down from the area of record highs, and the uncertainty about the elections may become a new driver for EUR/USD bulls. The level of $1.2 that seemed unreachable in the middle of May becomes closer and closer. I wouldn’t be surprised if my forecast of $1.22 was realised earlier than expected. Buying at retracements remains the main work strategy, even more so because there can be a new reason for that soon. Publications of European GDP values are likely to indicate that other economies of the eurozone felt worse than Germany in Q2.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-dollar-lost-its-nerves/?uid=285861726&cid=79634
Jobless claims in the USA
Fundamental forecast for dollar for today
Donald Trump eclipses US macrostatistics again
If Donald Trump hadn’t lost his nerves, EUR/USD bears could have prevented the attack of their opponents following the publication of statistics on the US GDP and jobless claims. The US president suggested the November presidential election be postponed until people can vote properly and safely. Asking to a question during his press conference later on, he replied: “Do I want to see a date change? No. But I don’t want to see a crooked election”. Politics has always been a negative factor for the greenback. The euro had a new impulse to rally on the early interference of the political factor.
According to Deutsche Bank, all that potentially delays a smooth transition of power is a source of uncertainty for dollar assets and negatively affects the US currency. The election will hardly be delayed as it’s the power of Congress. The Republican leaders didn’t welcome Trump’s suggestion but they can be contested. If the current president loses, the risk of such a scenario will increase.
The president’s tweets eclipsed the US economy’s worst drawdown since 1940 (minus 32.9%) and growth of jobless claims to 1.43 million. We can say goodbye to a V-shape recovery of GDP. The States’ situation is extremely bad: the fear of infection decreases economic activity, the unemployment rate is growing and a fiscal stimulus package cut reduces consumer spending. However, these factors aren’t new and they have already been considered in EUR/USD.
Statistics on the German GDP turned out worse than expected (-10.1% q/q). Still, Goldman Sachs believes Europe’s economic growth will outrun the US in 2020 due to a better local control over the virus, better macro-indicators and a better package of monetary and fiscal stimuli. JP Morgan forecasts that Germany’s GDP will drop 4.3% this year and will exceed its pre-crisis level in 2021. Its American peer will have been 2.5% less than the pre-pandemic value by the end of the next year after its 5.2% reduction in 2020.
Covid dictates to both economy and politics. A new series of US downbeat statistics may draw the economic surprise index down from the area of record highs, and the uncertainty about the elections may become a new driver for EUR/USD bulls. The level of $1.2 that seemed unreachable in the middle of May becomes closer and closer. I wouldn’t be surprised if my forecast of $1.22 was realised earlier than expected. Buying at retracements remains the main work strategy, even more so because there can be a new reason for that soon. Publications of European GDP values are likely to indicate that other economies of the eurozone felt worse than Germany in Q2.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-dollar-lost-its-nerves/?uid=285861726&cid=79634
Jobless claims in the USA
LiteFinance
Forecast for EUR/USD: whose grave is deeper?
Fundamental forecast for dollar for today
Will euro continue to rally or will EUR/USD consolidate?
The Fed was the main player to fight previous recessions, but now it plays a supporting role. Only the public health sector’s advancement will indicate an economic recovery. No easy money will protect people from COVID-19. At the latest FOMC’s meeting Jerome Powell said that “social distancing measures and a fast reopening of the economy actually go together. They’re not in competition with each other.” The Fed didn’t ask for a new lockdown but admitted that leading indicators started blinking red amid the worsening epidemiological situation. That’s good news for US stocks but bad news for the US dollar.
The Fed made it clear that unprecedented economic support measures would be sustained by extending repurchase agreements and temporary U.S. dollar liquidity swap lines through March 2021. Sellers of securities are having difficulties going against the aggressively disposed Fed, so S&P 500’s growth and the fall of treasuries yield to historical lows look logical. The greenback fell too, but EUR/USD’s failure to break an important level of 1.18 makes us doubt that big speculators are ready to continue the rally. At least now.
The euro’s fast growth in July attracted much attention and the number of bulls is growing. The main question is whether we should buy “at market” or wait for a pullback. The answer should be looked for in the stats on the US and German GDPs in Q2. The Reuters experts expect that the German economy will decline 9% q/q and 11.3% y-o-y. These are terrible expectations, but compare them with minus 34.1% in the USA and you’ll remember that it’s all relative. It’s been the worst result in the after-war period, which is three times worse than the 1958 anti-record of 10%.
No, it doesn’t mean the US GDP will lose a third of its value: for that to happen, 1 year will be required because its performance will be compared with April-June 2019. Still, the scale of recession is a question of principle for EUR/USD. A deeper hole makes is harder to get out. The euro will grow to $1.182 and $1.187 only if upbeat data on Germany are combined with pessimistic stats on the US. Otherwise, we have to be ready for higher volatility and consolidation.
Bulls will start fixing profits due to anxious signals from Europe and Asia. The number of new coronavirus cases and the unemployment rate in Spain are growing while in France, consumer confidence is falling. The Chinese economy slowed down in July according to the Bloomberg leading indicators. The US-China tense relations should be considered too: the trading conflict risks resuming as Beijing isn’t rushing to meet its obligation to increase imports of U.S. goods.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-whose-grave-is-deeper/?uid=285861726&cid=79634
US GDP dynamics
Fundamental forecast for dollar for today
Will euro continue to rally or will EUR/USD consolidate?
The Fed was the main player to fight previous recessions, but now it plays a supporting role. Only the public health sector’s advancement will indicate an economic recovery. No easy money will protect people from COVID-19. At the latest FOMC’s meeting Jerome Powell said that “social distancing measures and a fast reopening of the economy actually go together. They’re not in competition with each other.” The Fed didn’t ask for a new lockdown but admitted that leading indicators started blinking red amid the worsening epidemiological situation. That’s good news for US stocks but bad news for the US dollar.
The Fed made it clear that unprecedented economic support measures would be sustained by extending repurchase agreements and temporary U.S. dollar liquidity swap lines through March 2021. Sellers of securities are having difficulties going against the aggressively disposed Fed, so S&P 500’s growth and the fall of treasuries yield to historical lows look logical. The greenback fell too, but EUR/USD’s failure to break an important level of 1.18 makes us doubt that big speculators are ready to continue the rally. At least now.
The euro’s fast growth in July attracted much attention and the number of bulls is growing. The main question is whether we should buy “at market” or wait for a pullback. The answer should be looked for in the stats on the US and German GDPs in Q2. The Reuters experts expect that the German economy will decline 9% q/q and 11.3% y-o-y. These are terrible expectations, but compare them with minus 34.1% in the USA and you’ll remember that it’s all relative. It’s been the worst result in the after-war period, which is three times worse than the 1958 anti-record of 10%.
No, it doesn’t mean the US GDP will lose a third of its value: for that to happen, 1 year will be required because its performance will be compared with April-June 2019. Still, the scale of recession is a question of principle for EUR/USD. A deeper hole makes is harder to get out. The euro will grow to $1.182 and $1.187 only if upbeat data on Germany are combined with pessimistic stats on the US. Otherwise, we have to be ready for higher volatility and consolidation.
Bulls will start fixing profits due to anxious signals from Europe and Asia. The number of new coronavirus cases and the unemployment rate in Spain are growing while in France, consumer confidence is falling. The Chinese economy slowed down in July according to the Bloomberg leading indicators. The US-China tense relations should be considered too: the trading conflict risks resuming as Beijing isn’t rushing to meet its obligation to increase imports of U.S. goods.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-whose-grave-is-deeper/?uid=285861726&cid=79634
US GDP dynamics
LiteFinance
Forecast for EUR/USD: Dollar breaks the mould
Fundamental forecast for dollar for today
Every recession has its own trick
Crises are the moments of breaking memory patterns. The current economic recession provoked by the pandemic is no exception. Take the Dollar smile theory, for example. According to it, the greenback grows on a bigger demand for safe haven assets, falls on the Fed’s large monetary stimuli and rises again on expectations of the US GDP’s better performance versus its peers. July may become the worst month for the USD index in the past decade, even more so because something went wrong at the last stage. The mould is broken. The divergence in economic growths is favourable to EUR/USD.
Investors inevitably turn back to past experience: the 2007-2009 global economic crisis, the Great Depression of 1930, the 1918 flu pandemic. The previous recession is still fresh in our minds, so the Fed reacted naturally with a large monetary stimulus. Financial markets thought of the central bank’s 2008 success, put on rose-coloured glasses and believed it was time to buy risks. Now S&P 500 is concerned about what will happen to the economy and corporate benefits in Q3. The stocks have been outrunning themselves for a long time. The question is whether they have got too high.
Crises do break memory patterns, but there is a moment when a new consensus opinion of risk premiums is reached as investors react to a new global picture. I suppose the French-German fiscal stimulus project was that kind of a moment. Before the pandemic, Europe had been considered as the world’s main economic brake. Fiscal consolidation programs, Brexit, EU-scepticism, rumours of EU disintegration and, finally, the export-oriented region’s distress caused by the US-China trade wars urged speculators to sell the euro actively. The pandemic turned everything upside down, which is clearly seen in the forward market.
The single European currency isn’t led by American stock indexes any longer. What’s more, it is ready to withstand an eventual sell-out in the US stock market. International investors will move money from America to Europe because of S&P 500’s correction. Meanwhile, the dollar’s status of the world’s reserve currency will be undermined - this is what Goldman Sachs is trumpeting. GS believes that growing inflation and excessive government debt are the main reasons for the USD losing predominance in Fx transactions (88%) and gold reserves (62%).
According to the Goldman analysts, at the initial stage of recession Wall Street didn’t dare to say the Fed’s monetary stimulus would speed up PCE and CPI because they had already made a similar erroneous forecast in 2007-2009. However, investors’ are changing their minds. Inflation expectations are growing by leaps and bounds, real US bond yields are falling and the dollar is growing weaker. If the Fed shows tolerance of consumer prices growth at July’s meeting, a breakout of resistance levels at 1.1765 and 1.178 will allow EUR/USD to continue the rally.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-dollar-breaks-the-mould/?uid=285861726&cid=79634
Dynamics of speculative positions in euro
Fundamental forecast for dollar for today
Every recession has its own trick
Crises are the moments of breaking memory patterns. The current economic recession provoked by the pandemic is no exception. Take the Dollar smile theory, for example. According to it, the greenback grows on a bigger demand for safe haven assets, falls on the Fed’s large monetary stimuli and rises again on expectations of the US GDP’s better performance versus its peers. July may become the worst month for the USD index in the past decade, even more so because something went wrong at the last stage. The mould is broken. The divergence in economic growths is favourable to EUR/USD.
Investors inevitably turn back to past experience: the 2007-2009 global economic crisis, the Great Depression of 1930, the 1918 flu pandemic. The previous recession is still fresh in our minds, so the Fed reacted naturally with a large monetary stimulus. Financial markets thought of the central bank’s 2008 success, put on rose-coloured glasses and believed it was time to buy risks. Now S&P 500 is concerned about what will happen to the economy and corporate benefits in Q3. The stocks have been outrunning themselves for a long time. The question is whether they have got too high.
Crises do break memory patterns, but there is a moment when a new consensus opinion of risk premiums is reached as investors react to a new global picture. I suppose the French-German fiscal stimulus project was that kind of a moment. Before the pandemic, Europe had been considered as the world’s main economic brake. Fiscal consolidation programs, Brexit, EU-scepticism, rumours of EU disintegration and, finally, the export-oriented region’s distress caused by the US-China trade wars urged speculators to sell the euro actively. The pandemic turned everything upside down, which is clearly seen in the forward market.
The single European currency isn’t led by American stock indexes any longer. What’s more, it is ready to withstand an eventual sell-out in the US stock market. International investors will move money from America to Europe because of S&P 500’s correction. Meanwhile, the dollar’s status of the world’s reserve currency will be undermined - this is what Goldman Sachs is trumpeting. GS believes that growing inflation and excessive government debt are the main reasons for the USD losing predominance in Fx transactions (88%) and gold reserves (62%).
According to the Goldman analysts, at the initial stage of recession Wall Street didn’t dare to say the Fed’s monetary stimulus would speed up PCE and CPI because they had already made a similar erroneous forecast in 2007-2009. However, investors’ are changing their minds. Inflation expectations are growing by leaps and bounds, real US bond yields are falling and the dollar is growing weaker. If the Fed shows tolerance of consumer prices growth at July’s meeting, a breakout of resistance levels at 1.1765 and 1.178 will allow EUR/USD to continue the rally.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-dollar-breaks-the-mould/?uid=285861726&cid=79634
Dynamics of speculative positions in euro
LiteFinance
Forecast for EUR/USD: Will dollar correct?
Fundamental forecast for dollar for today
EUR/USD bears think a major part of negative information is factored in the quotes
The States’ inability to put an end to the pandemic may lead to the USD’s worst dynamics in the past 9 years. Not only gold has grown against the greenback in July, reaching a new record value. Almost everything has grown against the greenback. An increasing number of new Covid cases lets us think that controlling the virus in the USA is harder than in other countries. It cuts the efficiency of the US economy.
The main factors in the USD’s weakness are a bad epidemiological situation, China’s probable sales of US Treasuries, presidential election uncertainty, and fears that the Fed will continue monetary expansion and drop the federal funds rate below zero. It will hardly happen at FOMC’s meeting on 28-29 July, but obviously, the situation has changed for the worst since the last meeting.
Back in June, the number of Covid cases got stable. It was falling in New York and New Jersey, while Texas, Florida and California didn’t face the virus terror that they are in now. Still, the Fed’s forecast had already been pessimistic. Jerome Powell and his peers didn’t see any signs of the V-shape recovery the White House had been talking about. They rather appealed for fiscal stimulus and said the Central bank wasn’t able to deal alone with the pandemic. the Boston Fed President Eric Rosengren said in his latest interviews that he expected the same inflationary decline as in Europe, but the States weren’t as successful. American macro-indicators are still far from pre-crisis levels while the German Ifo Business Climate Index has exceeded them already.
The longer the epidemic lasts, the harder it will be for some sectors to recover. Millions of Americans will become jobless, businesses will go bankrupt and the banking system will be under a great stress. The economy is becoming less efficient, compared with competitors. This cannot but affect the currency rate. In the week ended 22 July, net USD shorts reached the highest level against 8 major currencies since April 2018.
The uncertainty around fiscal stimulus puts pressure on the greenback too. The Republicans proposed to increase the relief package by $1 trillion, cutting weekly unemployment benefits from $600 to $200. They believe the US has one foot in the pandemic and one foot in the recovery.
Still, no trend can do without correction. According to Rabobank, EUR/USD quotes have already considered both the probable worsening of US macro-statistics and the Fed’s downbeat expectations for GDP. The greenback may be given preference as a safe haven currency at any time, especially when US stock indexes aren’t willing to continue a rally. And that’s good for bulls! Retracements to $1.1655 and $1.158 will allow them to buy the euro cheaper.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-will-dollar-correct/?uid=285861726&cid=79634
Dynamics of German business climate indexes
Fundamental forecast for dollar for today
EUR/USD bears think a major part of negative information is factored in the quotes
The States’ inability to put an end to the pandemic may lead to the USD’s worst dynamics in the past 9 years. Not only gold has grown against the greenback in July, reaching a new record value. Almost everything has grown against the greenback. An increasing number of new Covid cases lets us think that controlling the virus in the USA is harder than in other countries. It cuts the efficiency of the US economy.
The main factors in the USD’s weakness are a bad epidemiological situation, China’s probable sales of US Treasuries, presidential election uncertainty, and fears that the Fed will continue monetary expansion and drop the federal funds rate below zero. It will hardly happen at FOMC’s meeting on 28-29 July, but obviously, the situation has changed for the worst since the last meeting.
Back in June, the number of Covid cases got stable. It was falling in New York and New Jersey, while Texas, Florida and California didn’t face the virus terror that they are in now. Still, the Fed’s forecast had already been pessimistic. Jerome Powell and his peers didn’t see any signs of the V-shape recovery the White House had been talking about. They rather appealed for fiscal stimulus and said the Central bank wasn’t able to deal alone with the pandemic. the Boston Fed President Eric Rosengren said in his latest interviews that he expected the same inflationary decline as in Europe, but the States weren’t as successful. American macro-indicators are still far from pre-crisis levels while the German Ifo Business Climate Index has exceeded them already.
The longer the epidemic lasts, the harder it will be for some sectors to recover. Millions of Americans will become jobless, businesses will go bankrupt and the banking system will be under a great stress. The economy is becoming less efficient, compared with competitors. This cannot but affect the currency rate. In the week ended 22 July, net USD shorts reached the highest level against 8 major currencies since April 2018.
The uncertainty around fiscal stimulus puts pressure on the greenback too. The Republicans proposed to increase the relief package by $1 trillion, cutting weekly unemployment benefits from $600 to $200. They believe the US has one foot in the pandemic and one foot in the recovery.
Still, no trend can do without correction. According to Rabobank, EUR/USD quotes have already considered both the probable worsening of US macro-statistics and the Fed’s downbeat expectations for GDP. The greenback may be given preference as a safe haven currency at any time, especially when US stock indexes aren’t willing to continue a rally. And that’s good for bulls! Retracements to $1.1655 and $1.158 will allow them to buy the euro cheaper.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-will-dollar-correct/?uid=285861726&cid=79634
Dynamics of German business climate indexes
LiteFinance
Forecast for EUR/USD: Euro will put eggs in different baskets
Fundamental forecast for euro for today
EUR/USD may continue to rally on diversification of investment portfolios and gold/forex reserves
I’m pleased when my forecasts hit the bullseye, and even more so when they are fundamentally based. In June, I bet on the difference between Europe’s and the US’ epidemiological states, which suggested a faster economic recovery of the eurozone . The epic French-German fiscal stimulus project allowed me to suppose that EUR/USD would have new growth drivers: a flow of capital from the New World to the Old World and diversification of gold/forex reserves to the advantage of the euro. I’m pleased that my forecasts have worked.
The States’ inability to combat the pandemic put it at a disadvantage. According to Markit, the US business activity in July fell short of Bloomberg’s forecasts while Purchasing managers’ index of the eurozone was a feast to the eye. True, Europe’s GDP must have drawn down deeper than the US peer, but it’s likely to return to pre-crisis levels faster. Divergence in economic growths is an important factor in pricing in both Forex and stock markets.
Global investors haven’t needed to diversify their portfolios in the recent years. The bet on American high-tech stocks worked really well. However, the higher S&P 500 gets, the more overbought it looks - even more so because of the complicated epidemiological situation and growing risks of the US GDP’s W-shape recovery. As a result, one wants to put eggs in different baskets, and European stocks look attractive after the EU has accepted the French-German offer. According to Goldman Sachs, the EU stocks will have grown 13% in dollar terms and outperformed American peers within 12 months.
The idea of replacing the USD with the single European currency in the central banks’ reserves looks interesting too. A famous billionaire Ray Dalio thinks that besides a trade war, a technology war and a geopolitical war, there can be a capital war between the U.S. and China. People’s Bank of China’s active diversification of over $3 trillion gold/forex reserves won’t do any good for the greenback. The USA’s refusal to pay back Chinese-held treasury debt will only speed up the process.
No doubt, some pitfalls should be considered when it comes to EUR/USD’s bullish trend. Growth of new Covid cases in some areas of Spain and South-Eastern Europe suggests that a recovery won’t be as smooth as one would want to. A weaker dollar is a boon for American technological companies that earn most of their profits from abroad, which makes investment portfolio diversification less necessary. The White House continues to hope for a V-shape recovery. However, all those arguments have looked unconvincing so far while the euro’s bullish trend is obvious. Continue using retracements for opening long-term long positions with targets at $1.18 and $1.22.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-euro-will-put-eggs-in-different-baskets/?uid=285861726&cid=79634
Evolution of European and American stocks
Fundamental forecast for euro for today
EUR/USD may continue to rally on diversification of investment portfolios and gold/forex reserves
I’m pleased when my forecasts hit the bullseye, and even more so when they are fundamentally based. In June, I bet on the difference between Europe’s and the US’ epidemiological states, which suggested a faster economic recovery of the eurozone . The epic French-German fiscal stimulus project allowed me to suppose that EUR/USD would have new growth drivers: a flow of capital from the New World to the Old World and diversification of gold/forex reserves to the advantage of the euro. I’m pleased that my forecasts have worked.
The States’ inability to combat the pandemic put it at a disadvantage. According to Markit, the US business activity in July fell short of Bloomberg’s forecasts while Purchasing managers’ index of the eurozone was a feast to the eye. True, Europe’s GDP must have drawn down deeper than the US peer, but it’s likely to return to pre-crisis levels faster. Divergence in economic growths is an important factor in pricing in both Forex and stock markets.
Global investors haven’t needed to diversify their portfolios in the recent years. The bet on American high-tech stocks worked really well. However, the higher S&P 500 gets, the more overbought it looks - even more so because of the complicated epidemiological situation and growing risks of the US GDP’s W-shape recovery. As a result, one wants to put eggs in different baskets, and European stocks look attractive after the EU has accepted the French-German offer. According to Goldman Sachs, the EU stocks will have grown 13% in dollar terms and outperformed American peers within 12 months.
The idea of replacing the USD with the single European currency in the central banks’ reserves looks interesting too. A famous billionaire Ray Dalio thinks that besides a trade war, a technology war and a geopolitical war, there can be a capital war between the U.S. and China. People’s Bank of China’s active diversification of over $3 trillion gold/forex reserves won’t do any good for the greenback. The USA’s refusal to pay back Chinese-held treasury debt will only speed up the process.
No doubt, some pitfalls should be considered when it comes to EUR/USD’s bullish trend. Growth of new Covid cases in some areas of Spain and South-Eastern Europe suggests that a recovery won’t be as smooth as one would want to. A weaker dollar is a boon for American technological companies that earn most of their profits from abroad, which makes investment portfolio diversification less necessary. The White House continues to hope for a V-shape recovery. However, all those arguments have looked unconvincing so far while the euro’s bullish trend is obvious. Continue using retracements for opening long-term long positions with targets at $1.18 and $1.22.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-euro-will-put-eggs-in-different-baskets/?uid=285861726&cid=79634
Evolution of European and American stocks
LiteFinance
Euro brings happiness
Fundamental Euro forecast for today
The EUR/USD surge to 18-month highs made the world’s authorities happy
How little it takes to make people happy! First, lose something important, and then get it back to feel good. The EUR/USD has been back to the levels of early 2019, and so the high and mighty are satisfied. For example, Donald Trump is happy, as he has many times criticized the strong dollar. The EU governments are happy as the strong euro signals the euro-area unity. The IMF is happy as it says the too high dollar’s value hampers the global economic recovery. The euro bears may argue that the ECB won’t let the rally continue as it is not beneficial for the export-let euro area. I, however, do not agree. When the authorities try to support the domestic demand cheap import becomes a more important factor than the interests of foreign buyers.
The leading Wall Street banks share the same opinion. Just yesterday, I noted that the approval of the French-German stimulus plan will support European stock in the competition with the US peers. It will increase the capital inflow to the euro-area markets, and so, the proportion of the euro in the FX reserves of the central banks will grow, just like its value. For example, Credit Suisse stresses that the percentage of the dollar in the global currency reserves can drop to the levels recorded in the early 1990s. The bank sees the EUR/USD at 1.18 and higher.
According to Mizuho, the current fair value of the euro is $1.22 and its rate may rise to $1.3 within 12 months due to large-scale purchases of high-yield bonds of the euro-area peripheral countries. The risks of the defaults have lowered after the EU governments agreed on the €1.8-trillion fiscal stimulus. AG Bisset Associates, which has been bearish on the US dollar for a long time, believes that the EUR/USD will be 30% in the next 16 months.
I believe the market continues working out the idea of the divergence in economic growth. The EU approval of the fiscal stimulus should speed up the euro-area GDP recovery trend. The US growth, however, is set back by disputes between the members of Congress and the White House. Democrats are willing to do even more than they were before (the House of Representatives approved a $3.5 trillion stimulus package). The Republicans, however, reject this proposal suggesting a package of $1 trillion, including payroll tax cuts to encourage people to return to jobs.
According to Bloomberg’s leading indicators, the gap in the recovery paces of the euro area and the US widened over the past week. The lack of agreement on the US new fiscal stimulus plan will widen it even more.
So, the bet on the divergence in the epidemiological situation and economic growth in the euro area and the US is working and should continue working. The EUR/USD upside target is at 1.17 by the year’s end. I recommend buying the euro on the corrections down.
Dynamics of the US dollar proportion in the global FX reserves
Fundamental Euro forecast for today
The EUR/USD surge to 18-month highs made the world’s authorities happy
How little it takes to make people happy! First, lose something important, and then get it back to feel good. The EUR/USD has been back to the levels of early 2019, and so the high and mighty are satisfied. For example, Donald Trump is happy, as he has many times criticized the strong dollar. The EU governments are happy as the strong euro signals the euro-area unity. The IMF is happy as it says the too high dollar’s value hampers the global economic recovery. The euro bears may argue that the ECB won’t let the rally continue as it is not beneficial for the export-let euro area. I, however, do not agree. When the authorities try to support the domestic demand cheap import becomes a more important factor than the interests of foreign buyers.
The leading Wall Street banks share the same opinion. Just yesterday, I noted that the approval of the French-German stimulus plan will support European stock in the competition with the US peers. It will increase the capital inflow to the euro-area markets, and so, the proportion of the euro in the FX reserves of the central banks will grow, just like its value. For example, Credit Suisse stresses that the percentage of the dollar in the global currency reserves can drop to the levels recorded in the early 1990s. The bank sees the EUR/USD at 1.18 and higher.
According to Mizuho, the current fair value of the euro is $1.22 and its rate may rise to $1.3 within 12 months due to large-scale purchases of high-yield bonds of the euro-area peripheral countries. The risks of the defaults have lowered after the EU governments agreed on the €1.8-trillion fiscal stimulus. AG Bisset Associates, which has been bearish on the US dollar for a long time, believes that the EUR/USD will be 30% in the next 16 months.
I believe the market continues working out the idea of the divergence in economic growth. The EU approval of the fiscal stimulus should speed up the euro-area GDP recovery trend. The US growth, however, is set back by disputes between the members of Congress and the White House. Democrats are willing to do even more than they were before (the House of Representatives approved a $3.5 trillion stimulus package). The Republicans, however, reject this proposal suggesting a package of $1 trillion, including payroll tax cuts to encourage people to return to jobs.
According to Bloomberg’s leading indicators, the gap in the recovery paces of the euro area and the US widened over the past week. The lack of agreement on the US new fiscal stimulus plan will widen it even more.
So, the bet on the divergence in the epidemiological situation and economic growth in the euro area and the US is working and should continue working. The EUR/USD upside target is at 1.17 by the year’s end. I recommend buying the euro on the corrections down.
Dynamics of the US dollar proportion in the global FX reserves
LiteFinance
XAU/USD forecast: Four nuts for gold
Fundamental gold price forecast for today
Gold can still break through its all-time highs
The huge monetary stimulus provided by the world’s leading central banks, and the weakness of the world’s major currencies have driven the gold price to the levels it was last seen in 2011. Will the growth of the inflation, or, maybe, stagflation, help gold to break through the all-time highs. When the XAU/USD bears are tired of fighting and are giving in, it doesn’t look like something unreal. According to Citigroup, the record high will be updated during 6-9 months. Besides, there is a 30% chance that the gold price will go up higher than $2000 per ounce in 3-5 months.
Ultra-low monetary policies of the central banks, the drop in the bonds real yields, a big flow of capitals into the gold ETFs, and the redistribution of assets in the investors’ portfolios allow the XAU/USD bulls to go ahead. Gold has already hot mew all-time highs against all G10 currencies except for the US dollar. It seems that the gold will soon break through the local high in trading versus the greenback. In addition to the high demand for ETF products, there is a rise in the demand for the inflation-protected bonds in July, as well as the drop in the USD index. All three factors are positive for gold.
The ETF gold holdings have increased by 450 tons, or $27 billion, since mid-July. It has become one of the major benefits of gold. The indicator has reached a record high of more than 3200 tons. During six months, investors bought the gold ETF products more than all central banks together in 2018-2019.
Earlier, bulls the XAU/USD bulls bet on the weakness of the world’s major currencies resulted from the huge monetary stimulus. Now, they are focused on inflation. Although the US PCE is far from the Fed’s target of 2%, 30-year Treasury inflation-protected securities are close to an all-time low, the yields on the 5-year and 10-year TIPS are close to the lowest levels since 2013 and 2012. In the week through July 8, investors invested about $5 billion in the related ETFs, having turned the trend of the capital outflow from the exchange-traded funds. The market expects the growth of the inflation rate, it is not confused by the current levels of the PCE and CPI. BofA Merrill Lynch says the US economy may face stagflation when the GDP is not recovering but the prices are growing.
In addition to the weakness of the world major currencies, including the US dollar, low Treasury real yields, and the expectations for the growth in consumer prices, another important growth driver for the XAU/USD is the redistribution of the investors’ assets. Stocks look too expensive according to the P/E ratio. Therefore, even strong US domestic data do not encourage the S&P 500 bulls. Bonds, unlike the stock indexes trading in the green, are trading in the red area and also look overbought. Gold seems much more promising under the current conditions. So, one could think of increasing the share of gold in the investment portfolio. If the price breaks through the resistance zone of $1820-$1825, it makes sense to enter gold longs and take part in the LiteForex contest devoted to the LiteForex 15th anniversary with excellent prizes.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/xauusd-forecast-four-nuts-for-gold/?uid=285861726&cid=79634
Dynamics of gold and ETF holdings
Fundamental gold price forecast for today
Gold can still break through its all-time highs
The huge monetary stimulus provided by the world’s leading central banks, and the weakness of the world’s major currencies have driven the gold price to the levels it was last seen in 2011. Will the growth of the inflation, or, maybe, stagflation, help gold to break through the all-time highs. When the XAU/USD bears are tired of fighting and are giving in, it doesn’t look like something unreal. According to Citigroup, the record high will be updated during 6-9 months. Besides, there is a 30% chance that the gold price will go up higher than $2000 per ounce in 3-5 months.
Ultra-low monetary policies of the central banks, the drop in the bonds real yields, a big flow of capitals into the gold ETFs, and the redistribution of assets in the investors’ portfolios allow the XAU/USD bulls to go ahead. Gold has already hot mew all-time highs against all G10 currencies except for the US dollar. It seems that the gold will soon break through the local high in trading versus the greenback. In addition to the high demand for ETF products, there is a rise in the demand for the inflation-protected bonds in July, as well as the drop in the USD index. All three factors are positive for gold.
The ETF gold holdings have increased by 450 tons, or $27 billion, since mid-July. It has become one of the major benefits of gold. The indicator has reached a record high of more than 3200 tons. During six months, investors bought the gold ETF products more than all central banks together in 2018-2019.
Earlier, bulls the XAU/USD bulls bet on the weakness of the world’s major currencies resulted from the huge monetary stimulus. Now, they are focused on inflation. Although the US PCE is far from the Fed’s target of 2%, 30-year Treasury inflation-protected securities are close to an all-time low, the yields on the 5-year and 10-year TIPS are close to the lowest levels since 2013 and 2012. In the week through July 8, investors invested about $5 billion in the related ETFs, having turned the trend of the capital outflow from the exchange-traded funds. The market expects the growth of the inflation rate, it is not confused by the current levels of the PCE and CPI. BofA Merrill Lynch says the US economy may face stagflation when the GDP is not recovering but the prices are growing.
In addition to the weakness of the world major currencies, including the US dollar, low Treasury real yields, and the expectations for the growth in consumer prices, another important growth driver for the XAU/USD is the redistribution of the investors’ assets. Stocks look too expensive according to the P/E ratio. Therefore, even strong US domestic data do not encourage the S&P 500 bulls. Bonds, unlike the stock indexes trading in the green, are trading in the red area and also look overbought. Gold seems much more promising under the current conditions. So, one could think of increasing the share of gold in the investment portfolio. If the price breaks through the resistance zone of $1820-$1825, it makes sense to enter gold longs and take part in the LiteForex contest devoted to the LiteForex 15th anniversary with excellent prizes.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/xauusd-forecast-four-nuts-for-gold/?uid=285861726&cid=79634
Dynamics of gold and ETF holdings
LiteFinance
EUR/USD forecast: Dollar is rising
Fundamental US dollar forecast for today
How deep will the EUR/USD fall?
The less you know, the better. The European Central Bank President Christine Lagarde hasn’t mentioned the disputes among the members of the Governing Council. She said the central bank currently expects to spend the full amount of its pandemic bond-buying program unless there isn’t a significant surprise, but the markets suggest something different. According to Bloomberg’s sources familiar with the matter, policymakers didn’t come to an agreement on whether the full program was likely to be used. Some Executive Board members argue that the improving economy may mean bond-buying could end before reaching the current cap. If it was officially announced, it would cancel the ECB’s baseline projection is for an 8.7% contraction in the euro-area economy this year. However, the ECB is not yet prepared to send such a message.
Lagarde stresses that the euro-area recovery remains partial and uneven, with risks still tilted to the downside. She says the ECB’s monetary stimulus will add 1.3% to the GDP and 0.8% to the inflation rate by 2022. The Governing Council is again divided into hawks and doves. The rich North is opposed to the poor South. So it is not surprising that some policymakers suggest the end of the bond-buying program, and other Executive Board members offer to expand it. According to the forecasts of the European Commission, the GDPs of Italy, France, and Spain will be down by approximately 11.5%, and Germany’s economy will lose half as much.
The lack of agreement among the ECB governors could eliminate such a benefit of the euro as the euro-area unity. It is extremely dangerous ahead of the EU summit. If the bloc doesn’t approve of the French-German 750 billion-euro recovery fund will set a date for an extraordinary meeting to continue discussions on this topic, the EUR/USD bulls will be set back.
In the US, however, the retail sales data and homebuilders’ outlook are is back at pre-pandemic levels. Furthermore, the Fed’s balance sheet fell by $210 billion since June 10, being back below $7 trillion. If the US economy performs better than it could be expected considering the growth in the daily COVID-19 cases to more than 70,000, then why should the Fed continue taking active measures? According to the forecast of Wall Street experts, the Fed’s balance sheet should rise to $8.5 trillion by the end of 2020, instead of $9.5 trillion expected earlier.
In addition to the improved domestic data in the US, investors consider such a bullish driver for the greenback as the escalation of the US-China trade war. The White House is not happy that the Chinese GDP grew by 3.2% in the second quarter, while the US GDP is likely to be down by 10% in the same period. A faster economic recovery will allow China’s exporters to boost their share in the market, and so, make one more step forward to the world’s leadership.
In my opinion, the down moves of the EUR/USD are nothing more than just a correction. An increase in the number of coronavirus cases will suggest worse economic data of the US for June, which, amid the main investment idea based on the divergence in the economic growth, should encourage the EUR/USD bulls to go ahead. If the EU governments agree on the fiscal stimulus package, the euro buyers will feel more confident. In the meanwhile, the major currency pair meets my expectations and consolidates in the range of 1.11-1.14. The euro is more likely to rise to $1.16 and higher than to fall to $1.11.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-is-rising/?uid=285861726&cid=79634
Forecasts for Fed balance sheet
Fundamental US dollar forecast for today
How deep will the EUR/USD fall?
The less you know, the better. The European Central Bank President Christine Lagarde hasn’t mentioned the disputes among the members of the Governing Council. She said the central bank currently expects to spend the full amount of its pandemic bond-buying program unless there isn’t a significant surprise, but the markets suggest something different. According to Bloomberg’s sources familiar with the matter, policymakers didn’t come to an agreement on whether the full program was likely to be used. Some Executive Board members argue that the improving economy may mean bond-buying could end before reaching the current cap. If it was officially announced, it would cancel the ECB’s baseline projection is for an 8.7% contraction in the euro-area economy this year. However, the ECB is not yet prepared to send such a message.
Lagarde stresses that the euro-area recovery remains partial and uneven, with risks still tilted to the downside. She says the ECB’s monetary stimulus will add 1.3% to the GDP and 0.8% to the inflation rate by 2022. The Governing Council is again divided into hawks and doves. The rich North is opposed to the poor South. So it is not surprising that some policymakers suggest the end of the bond-buying program, and other Executive Board members offer to expand it. According to the forecasts of the European Commission, the GDPs of Italy, France, and Spain will be down by approximately 11.5%, and Germany’s economy will lose half as much.
The lack of agreement among the ECB governors could eliminate such a benefit of the euro as the euro-area unity. It is extremely dangerous ahead of the EU summit. If the bloc doesn’t approve of the French-German 750 billion-euro recovery fund will set a date for an extraordinary meeting to continue discussions on this topic, the EUR/USD bulls will be set back.
In the US, however, the retail sales data and homebuilders’ outlook are is back at pre-pandemic levels. Furthermore, the Fed’s balance sheet fell by $210 billion since June 10, being back below $7 trillion. If the US economy performs better than it could be expected considering the growth in the daily COVID-19 cases to more than 70,000, then why should the Fed continue taking active measures? According to the forecast of Wall Street experts, the Fed’s balance sheet should rise to $8.5 trillion by the end of 2020, instead of $9.5 trillion expected earlier.
In addition to the improved domestic data in the US, investors consider such a bullish driver for the greenback as the escalation of the US-China trade war. The White House is not happy that the Chinese GDP grew by 3.2% in the second quarter, while the US GDP is likely to be down by 10% in the same period. A faster economic recovery will allow China’s exporters to boost their share in the market, and so, make one more step forward to the world’s leadership.
In my opinion, the down moves of the EUR/USD are nothing more than just a correction. An increase in the number of coronavirus cases will suggest worse economic data of the US for June, which, amid the main investment idea based on the divergence in the economic growth, should encourage the EUR/USD bulls to go ahead. If the EU governments agree on the fiscal stimulus package, the euro buyers will feel more confident. In the meanwhile, the major currency pair meets my expectations and consolidates in the range of 1.11-1.14. The euro is more likely to rise to $1.16 and higher than to fall to $1.11.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-is-rising/?uid=285861726&cid=79634
Forecasts for Fed balance sheet
LiteFinance
GBP/USD forecast: Pound caught the wind of change
Fundamental Pound forecast for today
Global risk appetite is no longer the main driver of the GBP/USD
For a long time, amid its high volatility, the GBP depended on the changes in the global risk appetite, behaving like an emerging market’s currency. Nonetheless, investors have now changed their point of view, as financial markets are stabilizing, and it is clear that the peak of the global economic recession has been over. Now, the major forex driver is the speed of the recovery trend in a particular country, which is greatly determined by the epidemiological situation. And the epidemiological situation is difficult in the UK.
The UK is likely to be among the European countries worst affected by COVID-19. About 300,000 coronavirus cases and 45,000 deaths, a late strict lockdown made the OECD forecast the UK GDP drop by 11.5% in 2020, which is the worst downturn for the advanced economies. Some improvements in the data on the UK retail sales, PMI, and inflation allowed the BoE Chief Economist Andy Haldane to suggest that the UK GDP should rebound sooner than it was earlier expected. It encouraged the GBP/USD bulls to draw the price to the top of figure 26. However, the success of the sterling buyers has not lasted for long.
The UK GDP report for May showed that the economy expanded by only 1.8%, instead of 5.5% expected by Reuters experts. It prompts that it will take a longer time for the UK GDP rate to return to the trend. The derivatives market expects the BoE will cut the interest rate below zero by March 2022. Economists polled by Bloomberg forecast the QE expansion by £50 billion through the end of 2020. The MPC Member Silvana Tenreyro says she is willing to vote for the further measures to support the UK economic recovery.
The head of the Bank of England Andrew Bailey supports this idea, saying that the central bank will do its best to support the UK GDP growth, and the interest rates should be kept low for a long time.
The pound is weakened because of several fundamental factors. The MPC members sound dovish, investors are disappointed as the UK economy fails to rebound quickly and shift their focus from the risk appetite to the divergence in the GDP growth. Furthermore, the Brexit issue has not been solved, and the breakup in trade relations with the EU will worsen the UK economic state that is already weak. The UK growth, according to Bloomberg is recovering, slower than that of other European countries. It suggests reasons to buy the EUR/GBP with targets at 0.925 and 0.94.
I expect the GBP/USD to consolidate in the trading range of 1.24-1.27. The pair should be responsive to the economic reports in the UK and the USA, as well as the news about Brexit. The epidemiological situation in the USA is worse than in the euro area. Besides, the US dollar long-term outlook is bearish. So, the GBP/USD uptrend could yet recover. Nonetheless, the sterling must have a fresh driver to go up form the trading range.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/gbpusd-forecast-pound-caught-the-wind-of-change/?uid=285861726&cid=79634
Dynamics of the probability of the BoE interest rate changes
Fundamental Pound forecast for today
Global risk appetite is no longer the main driver of the GBP/USD
For a long time, amid its high volatility, the GBP depended on the changes in the global risk appetite, behaving like an emerging market’s currency. Nonetheless, investors have now changed their point of view, as financial markets are stabilizing, and it is clear that the peak of the global economic recession has been over. Now, the major forex driver is the speed of the recovery trend in a particular country, which is greatly determined by the epidemiological situation. And the epidemiological situation is difficult in the UK.
The UK is likely to be among the European countries worst affected by COVID-19. About 300,000 coronavirus cases and 45,000 deaths, a late strict lockdown made the OECD forecast the UK GDP drop by 11.5% in 2020, which is the worst downturn for the advanced economies. Some improvements in the data on the UK retail sales, PMI, and inflation allowed the BoE Chief Economist Andy Haldane to suggest that the UK GDP should rebound sooner than it was earlier expected. It encouraged the GBP/USD bulls to draw the price to the top of figure 26. However, the success of the sterling buyers has not lasted for long.
The UK GDP report for May showed that the economy expanded by only 1.8%, instead of 5.5% expected by Reuters experts. It prompts that it will take a longer time for the UK GDP rate to return to the trend. The derivatives market expects the BoE will cut the interest rate below zero by March 2022. Economists polled by Bloomberg forecast the QE expansion by £50 billion through the end of 2020. The MPC Member Silvana Tenreyro says she is willing to vote for the further measures to support the UK economic recovery.
The head of the Bank of England Andrew Bailey supports this idea, saying that the central bank will do its best to support the UK GDP growth, and the interest rates should be kept low for a long time.
The pound is weakened because of several fundamental factors. The MPC members sound dovish, investors are disappointed as the UK economy fails to rebound quickly and shift their focus from the risk appetite to the divergence in the GDP growth. Furthermore, the Brexit issue has not been solved, and the breakup in trade relations with the EU will worsen the UK economic state that is already weak. The UK growth, according to Bloomberg is recovering, slower than that of other European countries. It suggests reasons to buy the EUR/GBP with targets at 0.925 and 0.94.
I expect the GBP/USD to consolidate in the trading range of 1.24-1.27. The pair should be responsive to the economic reports in the UK and the USA, as well as the news about Brexit. The epidemiological situation in the USA is worse than in the euro area. Besides, the US dollar long-term outlook is bearish. So, the GBP/USD uptrend could yet recover. Nonetheless, the sterling must have a fresh driver to go up form the trading range.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/gbpusd-forecast-pound-caught-the-wind-of-change/?uid=285861726&cid=79634
Dynamics of the probability of the BoE interest rate changes
LiteFinance
EUR/USD forecast: Euro wants to go up
Fundamental Euro forecast for today
EUR/USD bulls pin their hopes on China’s GDP report, the ECB meeting, and the EU summit
When the market is full of optimists, it ignores bad news and lively reacts to the good news. It doesn’t matter that during the test of the COVID-19 vaccine, side effects were observed; what matters is that all the people participating in the experiment produced antibodies. It doesn’t matter that corporate reporting by JP Morgan and Citigroup for the second quarter was gloomy, as the actual data exceeded the forecasts. It doesn’t matter that some FOMC members suggest strong uncertainty around the US economic recovery when some US central bankers still believe in the V-shaped recovery trend. When the glass is half-full, the S&P 500 and the EUR/USD can well continue the rally.
St. Louis Fed President James Bullard says the US economy adapts to the coronavirus, and there is still hope for a quick rebound. A strong jobs report for May and June supports the idea that the US GDP reached its bottom in April, and the forecast for the second quarter has been too grim. Federal Reserve Governor Lael Brainard says one of the main reasons for the improvement in the US employment data is the fiscal stimulus, some of whose programs are coming to an end. Even if the rate of the spread of COVID-19 slows down, the economy “is likely to face headwinds,” she warns, which may result in a double-dip recession.
Brainard’s pessimistic tone hasn’t caused much stress in the financial markets. The liquidity volumes poured by the Fed and other world’s central banks are too big, so the stock indexes won’t stop growing.
The stimulus sizes are so huge that the S&P 500 just can’t fall too deep. Besides, the euro has its own growth drivers, so the EUR/USD is steadily growing. The price has tested the resistance at 1.14, and the euro bulls are expecting more good news provided by the Chinese GDP report, the ECB meeting and the EU summit to drive the price higher.
The markets are going back to the norm and start to feature a correct response to the news. They are rising when the actual data exceed the forecasts and vice versa. With this regard, the pessimistic forecasts suggesting a 45% drop in corporate profits in the second quarter are more likely to support the S&P 500 than to send it down, which has been proven by the reaction of the stock index to the release of the reports by JP Morgan and Citigroup. The S&P 500 should also be supported if the Chinese domestic data are positive. The forecasts for China’s GDP, industrial production, retail sales, and investments are not very strong. It is expected that China’s economy hasn’t yet returned to the pre-crisis levels. What if it isn’t so?
The ECB doesn’t consider further interest rate cuts. Furthermore, it is willing to gradually reduce the volumes of the liquidity poured in the markets, following the example of other central banks. It will be a positive factor for the euro. Another growth driver will appear if the EU governments adopt the French-German fiscal stimulus plan at the EU summit. The EUR/USD has been consolidating in the range of 1.11-1.14 for too long, it is time to go up. If the price retests the resistance at 1.14, the bulls will go ahead. If, of course, everything goes on as expected.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-euro-wants-to-go-up/?uid=285861726&cid=79634
Dynamics of money supply and MSCI World Total Return
Fundamental Euro forecast for today
EUR/USD bulls pin their hopes on China’s GDP report, the ECB meeting, and the EU summit
When the market is full of optimists, it ignores bad news and lively reacts to the good news. It doesn’t matter that during the test of the COVID-19 vaccine, side effects were observed; what matters is that all the people participating in the experiment produced antibodies. It doesn’t matter that corporate reporting by JP Morgan and Citigroup for the second quarter was gloomy, as the actual data exceeded the forecasts. It doesn’t matter that some FOMC members suggest strong uncertainty around the US economic recovery when some US central bankers still believe in the V-shaped recovery trend. When the glass is half-full, the S&P 500 and the EUR/USD can well continue the rally.
St. Louis Fed President James Bullard says the US economy adapts to the coronavirus, and there is still hope for a quick rebound. A strong jobs report for May and June supports the idea that the US GDP reached its bottom in April, and the forecast for the second quarter has been too grim. Federal Reserve Governor Lael Brainard says one of the main reasons for the improvement in the US employment data is the fiscal stimulus, some of whose programs are coming to an end. Even if the rate of the spread of COVID-19 slows down, the economy “is likely to face headwinds,” she warns, which may result in a double-dip recession.
Brainard’s pessimistic tone hasn’t caused much stress in the financial markets. The liquidity volumes poured by the Fed and other world’s central banks are too big, so the stock indexes won’t stop growing.
The stimulus sizes are so huge that the S&P 500 just can’t fall too deep. Besides, the euro has its own growth drivers, so the EUR/USD is steadily growing. The price has tested the resistance at 1.14, and the euro bulls are expecting more good news provided by the Chinese GDP report, the ECB meeting and the EU summit to drive the price higher.
The markets are going back to the norm and start to feature a correct response to the news. They are rising when the actual data exceed the forecasts and vice versa. With this regard, the pessimistic forecasts suggesting a 45% drop in corporate profits in the second quarter are more likely to support the S&P 500 than to send it down, which has been proven by the reaction of the stock index to the release of the reports by JP Morgan and Citigroup. The S&P 500 should also be supported if the Chinese domestic data are positive. The forecasts for China’s GDP, industrial production, retail sales, and investments are not very strong. It is expected that China’s economy hasn’t yet returned to the pre-crisis levels. What if it isn’t so?
The ECB doesn’t consider further interest rate cuts. Furthermore, it is willing to gradually reduce the volumes of the liquidity poured in the markets, following the example of other central banks. It will be a positive factor for the euro. Another growth driver will appear if the EU governments adopt the French-German fiscal stimulus plan at the EU summit. The EUR/USD has been consolidating in the range of 1.11-1.14 for too long, it is time to go up. If the price retests the resistance at 1.14, the bulls will go ahead. If, of course, everything goes on as expected.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-euro-wants-to-go-up/?uid=285861726&cid=79634
Dynamics of money supply and MSCI World Total Return
LiteFinance
EUR/USD forecast: Dollar lost the fear
Fundamental US dollar forecast for today
What was the benefit of the USD index yesterday can become its flaw tomorrow
What is good for the entire world is bad for the US dollar. The pandemic is still the major growth driver of the greenback. The US stock indexes are weighed on by the difficult epidemiological situation in the U.S. and the news that California cancels plans to open economy. It supports the demand for safe havens and so, the dollar remains strong. However, based on the assumption that COVID-19 will be defeated, the long-term prospects for the US dollar look gloomy.
During the turmoil, investors buy out safe havens. However, once the markets calm down, the safe havens lose their appeal. The balance of the Fed's foreign exchange swaps with other central banks, designed to provide them with the dollar liquidity, dropped to $153 billion from $449 billion in late May. Global stock indexes have stabilized, nobody needs the greenback any more.
Having cut the interest rates to 0%-0.25%, the Fed returned the US dollar the status of the main safe haven, which strengthened the greenback when investors were guided by fear. However, when the global GDP started to recover from the recession, yesterday’s benefit turns into a flaw. The dollar has lost such a growth driver as high government bond yields, which sets back the capital inflow into the US. Foreign investors become more interested in China’s assets than in US securities. Foreign investors bought $619 billion of Chinese government bonds in the second quarter, it is the highest amount on record.
And the US desperately needs money! The U.S. budget deficit reached $3 trillion in the 12 months through June. The Congressional Budget Office expects it will be $ 3.7 billion this fiscal year. Besides, another round of emergency spending, suggested by the White House, will increase the US budget deficit, as well as the issuance volumes. How can they raise resources if foreign investors are increasingly buying bonds issued by the Chinese government?
In addition to the drop in the demand for safe havens and dollar liquidity, low Treasury yields, and problems with raising capital, the greenback is weighed on by growing Joe Biden's approval ratings and concerns about a decline in the US domestic data. It is expected that the Democratic president will not attack Beijing so much and write provocative tweets as Donald Trump does. Remember, the US-China trade war was one of the major dollar’s growth drivers in 2018-2019.
Therefore, there are quite many long-term negative factors affecting the US dollar, that is why its one-year risk reversals are down.
In the short run, the greenback is supported by the pandemic, and the euro is weighed on by the uncertainty around the outcomes of the ECB meeting and the EU summit, as well as the upcoming report on the Chinese GDP. The current EUR/USD consolidation in the narrow range of 1.125-1.14 is quite natural. Investors do not want to take important decisions ahead of the release of the important information in the week through July 17. We shall also wait and see.
Dynamics of the balance of the Fed's foreign exchange swaps
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-lost-the-fear/?uid=285861726&cid=79634
Fundamental US dollar forecast for today
What was the benefit of the USD index yesterday can become its flaw tomorrow
What is good for the entire world is bad for the US dollar. The pandemic is still the major growth driver of the greenback. The US stock indexes are weighed on by the difficult epidemiological situation in the U.S. and the news that California cancels plans to open economy. It supports the demand for safe havens and so, the dollar remains strong. However, based on the assumption that COVID-19 will be defeated, the long-term prospects for the US dollar look gloomy.
During the turmoil, investors buy out safe havens. However, once the markets calm down, the safe havens lose their appeal. The balance of the Fed's foreign exchange swaps with other central banks, designed to provide them with the dollar liquidity, dropped to $153 billion from $449 billion in late May. Global stock indexes have stabilized, nobody needs the greenback any more.
Having cut the interest rates to 0%-0.25%, the Fed returned the US dollar the status of the main safe haven, which strengthened the greenback when investors were guided by fear. However, when the global GDP started to recover from the recession, yesterday’s benefit turns into a flaw. The dollar has lost such a growth driver as high government bond yields, which sets back the capital inflow into the US. Foreign investors become more interested in China’s assets than in US securities. Foreign investors bought $619 billion of Chinese government bonds in the second quarter, it is the highest amount on record.
And the US desperately needs money! The U.S. budget deficit reached $3 trillion in the 12 months through June. The Congressional Budget Office expects it will be $ 3.7 billion this fiscal year. Besides, another round of emergency spending, suggested by the White House, will increase the US budget deficit, as well as the issuance volumes. How can they raise resources if foreign investors are increasingly buying bonds issued by the Chinese government?
In addition to the drop in the demand for safe havens and dollar liquidity, low Treasury yields, and problems with raising capital, the greenback is weighed on by growing Joe Biden's approval ratings and concerns about a decline in the US domestic data. It is expected that the Democratic president will not attack Beijing so much and write provocative tweets as Donald Trump does. Remember, the US-China trade war was one of the major dollar’s growth drivers in 2018-2019.
Therefore, there are quite many long-term negative factors affecting the US dollar, that is why its one-year risk reversals are down.
In the short run, the greenback is supported by the pandemic, and the euro is weighed on by the uncertainty around the outcomes of the ECB meeting and the EU summit, as well as the upcoming report on the Chinese GDP. The current EUR/USD consolidation in the narrow range of 1.125-1.14 is quite natural. Investors do not want to take important decisions ahead of the release of the important information in the week through July 17. We shall also wait and see.
Dynamics of the balance of the Fed's foreign exchange swaps
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-lost-the-fear/?uid=285861726&cid=79634