LiteFinance / プロファイル
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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LiteFinance
GBP/USD forecast: Pound stays calm
Fundamental Pound forecast for today
Sterling is focused on foreign factors and ignores domestic negative data
The GBP is still moving according to foreign factors because of the lack of important events in the economic calendar and expectations of the virtual gathering of the world’s central bankers in Jackson Hole. Investors pay no attention to the negative factors associated with Brexit, twin deficits (budget deficit and current account deficit), and the first-ever excess of the UK national debt over £2 trillion. Forex analysts suggest that if the euro breaks higher than $1.2 and moves on towards $1.25, the sterling will easily reach $1.35.
The options market is surprisingly stable without any response to Brexit issues. A year ago, the pound volatility will higher than that of the Mexican peso, and the market was shaken. The sterling volatility over the next 3 months is below the average for the last 5 years and slightly above the euro volatility. Taking into account that the EU-UK talks are close to the critical point, the market stability looks surprising. It suggests that either investors are confident in a soon Brexit deal or they do not expect that any of the parties will add uncertainty. However, a 60% likelihood of a Brexit deal doesn’t rule out a 40% chance of a no-deal divorce. It seems that after any failure in the previous negotiations, investors expect a breakthrough in each next round.
According to JP Morgan, a no-deal Brexit will contract the UK GDP by 5.5%, and the UK economy is already in a recession. There are several bearish drivers for the sterling. The twin deficits, the Conservatives’ discontent with the growth of the UK national debt, the second wave of COVID-19 in Europe, and the potentially vulnerable labor market due to the expiration of the financial aid package in October. According to Bloomberg, the programs, which have protected four million jobs should end in October. That could hit the labor market, slow down the GDP in the fourth quarter, and result in a boost of the UK QE by £100 billion.
So, the pound has many flaws. However, it has caught the tailwinds and responds to the increase in the global risk appetite and the Fed’s willingness to weaken the US dollar through the average inflation targeting. Nonetheless, Jerome Powell may not announce such a plan in Jackson Hole. Furthermore, the S&P500 may not be close to the all-time highs for a long time. According to the majority of 200 experts surveyed by Reuters, global stock indexes at the end of 2020 are likely to be lower than the levels hit in February, which means a correction down from the current levels.
In my opinion, investors ignore the UK's negative domestic factors because they are focused on Powell’s upcoming speech. If he announces the Fed’s average inflation targeting, the GBP/USD may break through the August highs and continue rallying up to 1.337 and 1.35. Otherwise, the sterling could go down below the support at 1.315.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/gbpusd-forecast-pound-stays-calm/?uid=285861726&cid=79634
Dynamics of UK jobs supported by state programs
Fundamental Pound forecast for today
Sterling is focused on foreign factors and ignores domestic negative data
The GBP is still moving according to foreign factors because of the lack of important events in the economic calendar and expectations of the virtual gathering of the world’s central bankers in Jackson Hole. Investors pay no attention to the negative factors associated with Brexit, twin deficits (budget deficit and current account deficit), and the first-ever excess of the UK national debt over £2 trillion. Forex analysts suggest that if the euro breaks higher than $1.2 and moves on towards $1.25, the sterling will easily reach $1.35.
The options market is surprisingly stable without any response to Brexit issues. A year ago, the pound volatility will higher than that of the Mexican peso, and the market was shaken. The sterling volatility over the next 3 months is below the average for the last 5 years and slightly above the euro volatility. Taking into account that the EU-UK talks are close to the critical point, the market stability looks surprising. It suggests that either investors are confident in a soon Brexit deal or they do not expect that any of the parties will add uncertainty. However, a 60% likelihood of a Brexit deal doesn’t rule out a 40% chance of a no-deal divorce. It seems that after any failure in the previous negotiations, investors expect a breakthrough in each next round.
According to JP Morgan, a no-deal Brexit will contract the UK GDP by 5.5%, and the UK economy is already in a recession. There are several bearish drivers for the sterling. The twin deficits, the Conservatives’ discontent with the growth of the UK national debt, the second wave of COVID-19 in Europe, and the potentially vulnerable labor market due to the expiration of the financial aid package in October. According to Bloomberg, the programs, which have protected four million jobs should end in October. That could hit the labor market, slow down the GDP in the fourth quarter, and result in a boost of the UK QE by £100 billion.
So, the pound has many flaws. However, it has caught the tailwinds and responds to the increase in the global risk appetite and the Fed’s willingness to weaken the US dollar through the average inflation targeting. Nonetheless, Jerome Powell may not announce such a plan in Jackson Hole. Furthermore, the S&P500 may not be close to the all-time highs for a long time. According to the majority of 200 experts surveyed by Reuters, global stock indexes at the end of 2020 are likely to be lower than the levels hit in February, which means a correction down from the current levels.
In my opinion, investors ignore the UK's negative domestic factors because they are focused on Powell’s upcoming speech. If he announces the Fed’s average inflation targeting, the GBP/USD may break through the August highs and continue rallying up to 1.337 and 1.35. Otherwise, the sterling could go down below the support at 1.315.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/gbpusd-forecast-pound-stays-calm/?uid=285861726&cid=79634
Dynamics of UK jobs supported by state programs
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LiteFinance
EUR/USD forecast: Dollar is drifting
Fundamental US dollar forecast for today
Investors are staying aside ahead of Jerome Powell’s speech and the publications of the US important domestic data
People see what they want to see. The euro fans are so enthusiastic that they prefer to ignore the flaws of the single European currency. Is the US-China trade resumed? It is not a problem! In 2018-2019, the EUR/USD pair was falling amid the trade conflict escalation. In 2020, however, it will be rising in this case because of the diversification of the PBOC FX reserves in favor of the euro. Are there talks about the expansion of European QE? It is not a problem! The ECB just can’t ease its monetary policy as much as the Fed. Is there the second pandemic wave in Europe? It doesn’t matter; the illness is asymptomatic; there won’t be another lockdown.
Optimism grows stronger. However, people with accompanying pathologies most often die from COVID-19. If we transfer this metaphor to the global economic sense, the accompanying pathology of the export-led euro-area economy is a downturn of the international trade. The process started because of trade wars, and the pandemic intensified it. According to the CPB Netherlands Bureau for Economic Policy Analysis, flows of goods across borders were 12.5% lower in the second quarter than in the first quarter of the year. It is the worst drop since records started in 2000. In the three months through June, the US exports contracted by 24.8%, the euro-area exports were 19.2% down. However, the US exports account for 20% of the country’s GDP; in the Eurozone, they exceed 40%. The euro-area exporters will have a difficult time, taking into account the euro’s rapid growth.
With this regard, the USA is in a better position, which allows the White House to repeat its mantra about the V-shaped economic recovery. People see what they want to see. Larry Kudlow, the chief economic advisor to Trump, ignores the problems of the US labor market and the drop in consumer confidence to the lowest level since 2014. He stresses the best new home sales over the past 14 years, industrial recovery, and the S&P500 record highs.
Unlike the White House, the Federal Reserve is more cautious. Jerome Powell has many times stressed the slow GDP recovery, the necessity to take control over OCVID-19, and fresh fiscal stimulus. The Republicans and Democrats can’t reach an agreement for a new financial aid package, and the Fed has to take the responsibility. So, investors anticipate Powell’s speech in Jackson Hole to get something meaningful.
According to MUFG Bank, Powell will focus on holding low interest rates, thereby weakening the greenback. Investors expect the Fed Chair to express the Fed’s willingness to “seek a moderate inflation overshoot” and reinforce its commitment to full employment. If so, there will be other evidence that the Fed is running out of monetary tools. If the number of Americans seeking unemployment benefits falls while durable goods orders rise, the EUR/USD bears can go ahead and try to break out the support levels of 1.178 and 1.1755. Otherwise, weak data and the Fed’s willingness to weaken the dollar can resume the greenback’s downtrend.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-is-drifting/?uid=285861726&cid=79634
Dynamics of US consumer confidence
Fundamental US dollar forecast for today
Investors are staying aside ahead of Jerome Powell’s speech and the publications of the US important domestic data
People see what they want to see. The euro fans are so enthusiastic that they prefer to ignore the flaws of the single European currency. Is the US-China trade resumed? It is not a problem! In 2018-2019, the EUR/USD pair was falling amid the trade conflict escalation. In 2020, however, it will be rising in this case because of the diversification of the PBOC FX reserves in favor of the euro. Are there talks about the expansion of European QE? It is not a problem! The ECB just can’t ease its monetary policy as much as the Fed. Is there the second pandemic wave in Europe? It doesn’t matter; the illness is asymptomatic; there won’t be another lockdown.
Optimism grows stronger. However, people with accompanying pathologies most often die from COVID-19. If we transfer this metaphor to the global economic sense, the accompanying pathology of the export-led euro-area economy is a downturn of the international trade. The process started because of trade wars, and the pandemic intensified it. According to the CPB Netherlands Bureau for Economic Policy Analysis, flows of goods across borders were 12.5% lower in the second quarter than in the first quarter of the year. It is the worst drop since records started in 2000. In the three months through June, the US exports contracted by 24.8%, the euro-area exports were 19.2% down. However, the US exports account for 20% of the country’s GDP; in the Eurozone, they exceed 40%. The euro-area exporters will have a difficult time, taking into account the euro’s rapid growth.
With this regard, the USA is in a better position, which allows the White House to repeat its mantra about the V-shaped economic recovery. People see what they want to see. Larry Kudlow, the chief economic advisor to Trump, ignores the problems of the US labor market and the drop in consumer confidence to the lowest level since 2014. He stresses the best new home sales over the past 14 years, industrial recovery, and the S&P500 record highs.
Unlike the White House, the Federal Reserve is more cautious. Jerome Powell has many times stressed the slow GDP recovery, the necessity to take control over OCVID-19, and fresh fiscal stimulus. The Republicans and Democrats can’t reach an agreement for a new financial aid package, and the Fed has to take the responsibility. So, investors anticipate Powell’s speech in Jackson Hole to get something meaningful.
According to MUFG Bank, Powell will focus on holding low interest rates, thereby weakening the greenback. Investors expect the Fed Chair to express the Fed’s willingness to “seek a moderate inflation overshoot” and reinforce its commitment to full employment. If so, there will be other evidence that the Fed is running out of monetary tools. If the number of Americans seeking unemployment benefits falls while durable goods orders rise, the EUR/USD bears can go ahead and try to break out the support levels of 1.178 and 1.1755. Otherwise, weak data and the Fed’s willingness to weaken the dollar can resume the greenback’s downtrend.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-is-drifting/?uid=285861726&cid=79634
Dynamics of US consumer confidence
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LiteFinance
EUR/USD forecast: Euro is scared of heights
Fundamental Euro forecast for today
Isn’t EUR/USD trading too high?
The Forex market is always changing! In winter, the news about progress in the US-China would strengthen the euro. In spring, the US stock market rally would support the EUR/USD bulls. At the end of summer, however, the euro isn’t rising amid the US optimistic announcements about making a deal with China. It isn’t rising although the S&P500 has hit a fresh high on the news about the accelerated approval of vaccines and the use of blood plasma to treat critically ill COVID-19 patients. Isn’t the euro trading too high?
Although Donald Trump claims he does not want to talk with China and does not rule out a complete break in relations with this country, US and Chinese officials discussed the status of the trade deal. Chinese Vice-Premier Liu He spoke with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to discuss further action needed to make progress on the trade deal. Such a tone suggests the White House still wants to reach an agreement with China.
Beijing has fallen behind its first-year commitment. Nonetheless, the recovery of China’s economy, growing domestic demand, and the unwillingness to inflame tensions with Washington suggest that there won’t be a new round of trade wars.
Donald Trump doesn’t want to resume the trade battle ahead of the US presidential election. Joe Biden has already accused him of the failure of his policy with Beijing, so he wouldn’t give his opponent another reason for criticism. China doesn’t want new tariffs. China’s economy, unlike most advanced economies, will expand in 2020. JP Morgan increased the forecast for the Chinese GDP in 2020 from 1.3% to 2.5%. The US GDP, for example, should contract by 8% this year.
The continuous rise of the US stock indexes and progress in US-China trade relations supported Trump’s approval ratings, which could be a reason for the EUR/USD correction. What is good for Trump is good for the US dollar.
But still, the primary reason for the euro drawdown is likely to be the second wave of the pandemic in Europe. The ratio of the COVID-19 cases in Europe and the US peaked in early August, but the situation has changed since then.
If the EUR/USD breaks out supports at 1.178 and 1.1755 could suggest entering short-term sell trades. One should not hold the shorts for too long, in my opinion. Many euro’s growth drivers still work out, and the deterioration of the euro-area epidemiological situation will hardly last for a long time.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-euro-is-scared-of-heights/?uid=285861726&cid=79634
Fundamental Euro forecast for today
Isn’t EUR/USD trading too high?
The Forex market is always changing! In winter, the news about progress in the US-China would strengthen the euro. In spring, the US stock market rally would support the EUR/USD bulls. At the end of summer, however, the euro isn’t rising amid the US optimistic announcements about making a deal with China. It isn’t rising although the S&P500 has hit a fresh high on the news about the accelerated approval of vaccines and the use of blood plasma to treat critically ill COVID-19 patients. Isn’t the euro trading too high?
Although Donald Trump claims he does not want to talk with China and does not rule out a complete break in relations with this country, US and Chinese officials discussed the status of the trade deal. Chinese Vice-Premier Liu He spoke with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to discuss further action needed to make progress on the trade deal. Such a tone suggests the White House still wants to reach an agreement with China.
Beijing has fallen behind its first-year commitment. Nonetheless, the recovery of China’s economy, growing domestic demand, and the unwillingness to inflame tensions with Washington suggest that there won’t be a new round of trade wars.
Donald Trump doesn’t want to resume the trade battle ahead of the US presidential election. Joe Biden has already accused him of the failure of his policy with Beijing, so he wouldn’t give his opponent another reason for criticism. China doesn’t want new tariffs. China’s economy, unlike most advanced economies, will expand in 2020. JP Morgan increased the forecast for the Chinese GDP in 2020 from 1.3% to 2.5%. The US GDP, for example, should contract by 8% this year.
The continuous rise of the US stock indexes and progress in US-China trade relations supported Trump’s approval ratings, which could be a reason for the EUR/USD correction. What is good for Trump is good for the US dollar.
But still, the primary reason for the euro drawdown is likely to be the second wave of the pandemic in Europe. The ratio of the COVID-19 cases in Europe and the US peaked in early August, but the situation has changed since then.
If the EUR/USD breaks out supports at 1.178 and 1.1755 could suggest entering short-term sell trades. One should not hold the shorts for too long, in my opinion. Many euro’s growth drivers still work out, and the deterioration of the euro-area epidemiological situation will hardly last for a long time.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-euro-is-scared-of-heights/?uid=285861726&cid=79634
![LiteFinance](https://c.mql5.com/avatar/2014/3/5315BC66-84FD.jpg)
LiteFinance
EUR/USD forecast: Dollar generates a new idea
Fundamental US dollar forecast for today
Investors will focus on the US presidential election in autumn
Markets are driven by investment ideas, which are generated first, then investors open positions, and finally, close them if something goes wrong. In spring, everybody was tracking the global risk appetite and the changes in the S&P500 value, to buy or sell the dollar pairs. In summer, they were focused on the divergence in the economic expansion between the euro area and the US, which sent the EUR/USD to the highest level over the last two years. Once the market had had doubts about its efficiency, investors closed longs and sent the euro down.
The PMI report in August has ruined the idea of the leading performance of the euro-area GDP over the US growth. The PMI is thought to be a leading indicator for the GDP. The US composite PMI has been up to its eighteen-month high, and its European peer has fallen from 54.9 to 51.6, making the EUR/USD bulls exit longs. The US economy is being reopened after the lockdown introduced in the spring; it is surprisingly resilient to the coronavirus epidemic going in the country. The Eurozone’s growth is slowing down amid the rise in the number of new COVID-19 cases in Germany, France, and Spain to the levels recorded in May, and even in April.
Also, there are problems in the euro-area labor market. So, the Forex analysts say that the European economy is more likely to have a W-shaped recovery, rather than a V-shaped one. The programs of the population retention in the labor force existing in the euro area do not encourage people to find new jobs. The labor market is dynamic when it goes through the phases of rising and fall. If the fall is artificially averted, can we expect the employment boom in 2021-2022? The actual unemployment level may not be at the official level of 7.8% but is likely to be above 9%, and in Spain, it can be close 20%. What will happen when the assistance programs are over?
In my opinion, things are not that bad. The growth in the new coronavirus cases in Europe results from the holiday season. Mostly young people are sick, most often asymptomatic, which explains the low number of hospitalizations and mortality. The GDP recovery will be slow both in the US and in the euro area, the markets need a fresh investment idea. It can well be the US presidential election. What is good for Donald Trump is good for the US dollar. Hence, the growing risks of Trump’s defeat will weigh on the USD.
Therefore, the EUR/USD can roll down in the short-term. But, in the long-term, the euro uptrend is likely to resume. My idea about the middle-term consolidation in the range of 1.158-1.188 looks more and more promising. So, I still recommend buying the euro on the rebound from the supports at $1.173, $1.168, and $1.162.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-generates-a-new-idea/?uid=285861726&cid=79634
Fundamental US dollar forecast for today
Investors will focus on the US presidential election in autumn
Markets are driven by investment ideas, which are generated first, then investors open positions, and finally, close them if something goes wrong. In spring, everybody was tracking the global risk appetite and the changes in the S&P500 value, to buy or sell the dollar pairs. In summer, they were focused on the divergence in the economic expansion between the euro area and the US, which sent the EUR/USD to the highest level over the last two years. Once the market had had doubts about its efficiency, investors closed longs and sent the euro down.
The PMI report in August has ruined the idea of the leading performance of the euro-area GDP over the US growth. The PMI is thought to be a leading indicator for the GDP. The US composite PMI has been up to its eighteen-month high, and its European peer has fallen from 54.9 to 51.6, making the EUR/USD bulls exit longs. The US economy is being reopened after the lockdown introduced in the spring; it is surprisingly resilient to the coronavirus epidemic going in the country. The Eurozone’s growth is slowing down amid the rise in the number of new COVID-19 cases in Germany, France, and Spain to the levels recorded in May, and even in April.
Also, there are problems in the euro-area labor market. So, the Forex analysts say that the European economy is more likely to have a W-shaped recovery, rather than a V-shaped one. The programs of the population retention in the labor force existing in the euro area do not encourage people to find new jobs. The labor market is dynamic when it goes through the phases of rising and fall. If the fall is artificially averted, can we expect the employment boom in 2021-2022? The actual unemployment level may not be at the official level of 7.8% but is likely to be above 9%, and in Spain, it can be close 20%. What will happen when the assistance programs are over?
In my opinion, things are not that bad. The growth in the new coronavirus cases in Europe results from the holiday season. Mostly young people are sick, most often asymptomatic, which explains the low number of hospitalizations and mortality. The GDP recovery will be slow both in the US and in the euro area, the markets need a fresh investment idea. It can well be the US presidential election. What is good for Donald Trump is good for the US dollar. Hence, the growing risks of Trump’s defeat will weigh on the USD.
Therefore, the EUR/USD can roll down in the short-term. But, in the long-term, the euro uptrend is likely to resume. My idea about the middle-term consolidation in the range of 1.158-1.188 looks more and more promising. So, I still recommend buying the euro on the rebound from the supports at $1.173, $1.168, and $1.162.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-generates-a-new-idea/?uid=285861726&cid=79634
![LiteFinance](https://c.mql5.com/avatar/2014/3/5315BC66-84FD.jpg)
LiteFinance
EUR/USD forecast: Euro took up math
Fundamental Euro forecast for today
Open EUR/USD position according to the euro-area PMI data
Financial markets base on mathematics. The divergence in the economic growth, having supported the EUR/USD bulls during the summer, looked like an equation with one unknown. A better epidemiological situation in Europe than in the USA has almost convinced investors that the euro-area economy will be recovering faster than the US GDP. As a result, the rise of the major currency pair depended on the US economic data. A better economic performance, together with the Fed’s unwillingness to ease its monetary policy (which signals hidden optimism), sent the euro down to $1.18. However, once there appeared some negative, the euro bulls went ahead.
The US jobless claims are again back to a level of above 1 million, the manufacturing PMI data reported by the New York Fed and Philadelphia Fed are weak. These reports show that the US economy is not revering as rapidly as the dollar buyers would like. I have many times stressed that the market turns out to be more fundamental amid the interest rates of the world’s leading central banks, which are close to zero. Investors are quite responsive to the reports on the US domestic data, especially since the US economy has been that unknown in the growth- gap equation.
The experts’ projections for the euro-area economy have been optimistic. In my opinion, too optimistic. Since the French-German stimulus plan was adopted, the euro risk reversals have been up by 60-80 basis points. The indicator has increased so rapidly only three times since the records began in 2006, and each time, the EUR/USD was up by 5% and more in a few net months. There is an increased demand in the options market for call options with strikes of 1.22, 1.23, 1.25, and even 1.28.
Investors completely forgot that an equation with one unknown could transform at any moment into an equation with two unknowns. In Europe, the second wave of the pandemic unfolding. In Spain, about 4,800 new COVID-19 cases are registered per day, which is the highest since April; in France, the number of coronavirus cases has increased by 50% in a week, in Germany, the figure has exceeded 1,500, the highest since early May. Yes, European relative indicators still fall short of the US, where 150 cases for 1 million of the population (in problematic Spain, there are 110 cases for 1 million), Yes, most infected are young people. Hence, the number of hospitalizations and deaths is small, but who knows how the situation will develop further?
The difficulties will increase amid the expiration of programs to retain the non-working population in the labor force, which could result in a surge in unemployment and weigh on the consumer activity. The ECB stressed this problem at its July meeting, the central bank is willing to expand QE if necessary. It is a bearish factor for the EUR/USD, but traders ignored it. The euphoria about the euro is still present and could end up bad for the euro buyers. The uncertainty about the euro-area economic recovery increases the risk that the euro will roll down to $1.18 if the euro-area PMI data for August are weak.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-euro-took-up-math/?uid=285861726&cid=79634
Demand for euro-dollar options
Fundamental Euro forecast for today
Open EUR/USD position according to the euro-area PMI data
Financial markets base on mathematics. The divergence in the economic growth, having supported the EUR/USD bulls during the summer, looked like an equation with one unknown. A better epidemiological situation in Europe than in the USA has almost convinced investors that the euro-area economy will be recovering faster than the US GDP. As a result, the rise of the major currency pair depended on the US economic data. A better economic performance, together with the Fed’s unwillingness to ease its monetary policy (which signals hidden optimism), sent the euro down to $1.18. However, once there appeared some negative, the euro bulls went ahead.
The US jobless claims are again back to a level of above 1 million, the manufacturing PMI data reported by the New York Fed and Philadelphia Fed are weak. These reports show that the US economy is not revering as rapidly as the dollar buyers would like. I have many times stressed that the market turns out to be more fundamental amid the interest rates of the world’s leading central banks, which are close to zero. Investors are quite responsive to the reports on the US domestic data, especially since the US economy has been that unknown in the growth- gap equation.
The experts’ projections for the euro-area economy have been optimistic. In my opinion, too optimistic. Since the French-German stimulus plan was adopted, the euro risk reversals have been up by 60-80 basis points. The indicator has increased so rapidly only three times since the records began in 2006, and each time, the EUR/USD was up by 5% and more in a few net months. There is an increased demand in the options market for call options with strikes of 1.22, 1.23, 1.25, and even 1.28.
Investors completely forgot that an equation with one unknown could transform at any moment into an equation with two unknowns. In Europe, the second wave of the pandemic unfolding. In Spain, about 4,800 new COVID-19 cases are registered per day, which is the highest since April; in France, the number of coronavirus cases has increased by 50% in a week, in Germany, the figure has exceeded 1,500, the highest since early May. Yes, European relative indicators still fall short of the US, where 150 cases for 1 million of the population (in problematic Spain, there are 110 cases for 1 million), Yes, most infected are young people. Hence, the number of hospitalizations and deaths is small, but who knows how the situation will develop further?
The difficulties will increase amid the expiration of programs to retain the non-working population in the labor force, which could result in a surge in unemployment and weigh on the consumer activity. The ECB stressed this problem at its July meeting, the central bank is willing to expand QE if necessary. It is a bearish factor for the EUR/USD, but traders ignored it. The euphoria about the euro is still present and could end up bad for the euro buyers. The uncertainty about the euro-area economic recovery increases the risk that the euro will roll down to $1.18 if the euro-area PMI data for August are weak.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-euro-took-up-math/?uid=285861726&cid=79634
Demand for euro-dollar options
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LiteFinance
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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
![](https://c.mql5.com/1/184/265.jpg)
![LiteFinance](https://c.mql5.com/avatar/2014/3/5315BC66-84FD.jpg)
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
![](https://c.mql5.com/1/184/242.jpg)
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