LiteFinance
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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).
LiteFinance
Dollar runs a marathon. Forecast as of 10.05.2021
Weekly US dollar fundamental forecast
Recovery is not a sprint, it is a marathon. The US economy has a long way to go. Some analysts could suggest that Joe Biden's words in response to the disappointing US jobs report sound like an excuse. In my opinion, Biden explains why the Fed is in no hurry to discuss unwinding the monetary stimulus. The US economic recovery could seem booming at some point, but without the help of the central bank, it risks slowing down.
In April, US employment increased by 266,000 jobs, well below the expectations of Bloomberg experts. The previous report was revised down to +770,000. The report leaves the US roughly 8 million jobs below pre-pandemic levels. Unemployment ticked up to 6.1% from the previous figure of 6.1%. Some companies continue to doubt the economic prospects, others cannot find employees. Problems filling vacancies arise because the government pays people to keep them from returning to work, Republicans say. According to BofA Merrill Lynch estimates, those Americans who earn less than $ 32,000 a year, with existing support programs, have no reason to go to work at all.
According to Minneapolis Fed President Neel Kashkari, a weak US jobs report explains why the Fed has tied monetary policy to the pace of economic recovery. The market reaction proves that investors have finally believed that the central bank will continue to remain passive. Treasury yields fell and the USD had its worst daily drop in five months. It has almost returned to the levels of early 2021, and the idea of its significant weakening, which prevailed at the end of 2020, is again discussed in Forex.
Citi notes that the US exclusivity is exhausting, and the greenback is weakening amid the Fed’s passive attitude, moderate risk appetite, and global economic recovery. UniCredit expects the further decline of the USD as the global growth is recovering and the risk appetite is improving. In the week ended on May 2, hedge funds boosted their dollar shorts against a basket of major currencies to $10 billion, up from $4 billion in mid-April. The current USD shorts are far from $31 billion in 2020. It means the greenback has more room to fall.
However, the EURUSD bulls still have some problems. Following a drop after the US weak jobs report, the Treasury yields are recovering. Investors are now focused on the US inflation data, which, according to the forecasts, could be at 3.6% in April. If so, will the Fed remain as cool as it is now?
Weekly EURUSD trading plan
I believe, the Fed will hold its policy unchanged. This is not a sprint, this is a marathon. The EURUSD is close to the targets at 1.218 and 1.23, I indicated in late April. It is still relevant to add up to the longs on the corrections.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-runs-a-marathon-forecast-as-of-10052021/?uid=285861726&cid=79634
Dynamics of US employment
Weekly US dollar fundamental forecast
Recovery is not a sprint, it is a marathon. The US economy has a long way to go. Some analysts could suggest that Joe Biden's words in response to the disappointing US jobs report sound like an excuse. In my opinion, Biden explains why the Fed is in no hurry to discuss unwinding the monetary stimulus. The US economic recovery could seem booming at some point, but without the help of the central bank, it risks slowing down.
In April, US employment increased by 266,000 jobs, well below the expectations of Bloomberg experts. The previous report was revised down to +770,000. The report leaves the US roughly 8 million jobs below pre-pandemic levels. Unemployment ticked up to 6.1% from the previous figure of 6.1%. Some companies continue to doubt the economic prospects, others cannot find employees. Problems filling vacancies arise because the government pays people to keep them from returning to work, Republicans say. According to BofA Merrill Lynch estimates, those Americans who earn less than $ 32,000 a year, with existing support programs, have no reason to go to work at all.
According to Minneapolis Fed President Neel Kashkari, a weak US jobs report explains why the Fed has tied monetary policy to the pace of economic recovery. The market reaction proves that investors have finally believed that the central bank will continue to remain passive. Treasury yields fell and the USD had its worst daily drop in five months. It has almost returned to the levels of early 2021, and the idea of its significant weakening, which prevailed at the end of 2020, is again discussed in Forex.
Citi notes that the US exclusivity is exhausting, and the greenback is weakening amid the Fed’s passive attitude, moderate risk appetite, and global economic recovery. UniCredit expects the further decline of the USD as the global growth is recovering and the risk appetite is improving. In the week ended on May 2, hedge funds boosted their dollar shorts against a basket of major currencies to $10 billion, up from $4 billion in mid-April. The current USD shorts are far from $31 billion in 2020. It means the greenback has more room to fall.
However, the EURUSD bulls still have some problems. Following a drop after the US weak jobs report, the Treasury yields are recovering. Investors are now focused on the US inflation data, which, according to the forecasts, could be at 3.6% in April. If so, will the Fed remain as cool as it is now?
Weekly EURUSD trading plan
I believe, the Fed will hold its policy unchanged. This is not a sprint, this is a marathon. The EURUSD is close to the targets at 1.218 and 1.23, I indicated in late April. It is still relevant to add up to the longs on the corrections.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-runs-a-marathon-forecast-as-of-10052021/?uid=285861726&cid=79634
Dynamics of US employment
LiteFinance
Is dollar hysterical? Forecast as of 07.05.2021
Weekly US dollar fundamental forecast
Investors continue discussing the events of 2013 when tapering of the QE in the US resulted in turmoil in financial markets. Some traders hedge against the risks of a taper tantrum by selling Treasuries, some believe it will not happen in 2021 and buy stocks. The first ones are getting fewer, the number the second increases. Therefore, the stock indexes hit new all-time highs, and the EURUSD grows.
Investors have prepared for the US jobs report. The consensus forecast of Reuters experts suggests that nonfarm payrolls likely increased by 978,000 jobs in April after rising by 916,000 in March. If the forecast is met, the job losses will decrease from 20.7 million at the peak of the recession to 7.5 million. Markets are getting more and more convinced that the jobs report will be strong. However, the signs of the employment rebound are a double-edged sword. This process could improve risk appetite and allow the S&P 500 to rally further. On the other hand, growing risks of the inflation surge could push Treasury yields up and overvalued stocks down.
Judging by the March events, when the rally in the Treasury yields did not worry the FOMC officials, the growth of stock indices, on the contrary, may encourage the Fed to take action. According to Dallas Fed President Robert Kaplan, imbalances in financial markets can lead to the fact that the issues of winding down QE will need to be raised sooner rather than later. The Fed, of course, welcomes the improved financial conditions, allowing the economy to recover faster, but notes in its latest report that if risk appetite falls from elevated levels, a number of assets could be vulnerable to deep and sudden drops, which could stress the financial system.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/is-dollar-hysterical-forecast-as-of-07052021/?uid=285861726&cid=79634
Dynamics of US financial conditions
Weekly US dollar fundamental forecast
Investors continue discussing the events of 2013 when tapering of the QE in the US resulted in turmoil in financial markets. Some traders hedge against the risks of a taper tantrum by selling Treasuries, some believe it will not happen in 2021 and buy stocks. The first ones are getting fewer, the number the second increases. Therefore, the stock indexes hit new all-time highs, and the EURUSD grows.
Investors have prepared for the US jobs report. The consensus forecast of Reuters experts suggests that nonfarm payrolls likely increased by 978,000 jobs in April after rising by 916,000 in March. If the forecast is met, the job losses will decrease from 20.7 million at the peak of the recession to 7.5 million. Markets are getting more and more convinced that the jobs report will be strong. However, the signs of the employment rebound are a double-edged sword. This process could improve risk appetite and allow the S&P 500 to rally further. On the other hand, growing risks of the inflation surge could push Treasury yields up and overvalued stocks down.
Judging by the March events, when the rally in the Treasury yields did not worry the FOMC officials, the growth of stock indices, on the contrary, may encourage the Fed to take action. According to Dallas Fed President Robert Kaplan, imbalances in financial markets can lead to the fact that the issues of winding down QE will need to be raised sooner rather than later. The Fed, of course, welcomes the improved financial conditions, allowing the economy to recover faster, but notes in its latest report that if risk appetite falls from elevated levels, a number of assets could be vulnerable to deep and sudden drops, which could stress the financial system.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/is-dollar-hysterical-forecast-as-of-07052021/?uid=285861726&cid=79634
Dynamics of US financial conditions
LiteFinance
Dollar is set back by central bank. Forecast as of 06.05.2021
Divergence in the economic expansion is a reason to sell the EURUSD. However, the Fed’s hawks turn into doves, and the euro bears are set back. Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
For some traders, the US dollar exchange rate is a puzzle; for others, the dollar price is, on the contrary, a clue to whether the Fed is right saying that the consumer price surge is temporary. If the Fed is wrong, and US inflation should be high for a long time, the central bank will have to raise the interest rate, supporting the dollar rally. Otherwise, if the Fed is right, the dollar will not rise even amid the US economic strength. I am glad about such a trend. The Forex pricing again depends on the monetary policy, rather than trade wars or pandemics.
The Fed is the primary obstacle setting back the EURUSD bears. If the US central bank acted in the old way, one could safely trade the ideas based on the dollar smile theory. The dollar smile theory suggests the greenback should strengthen at the recession peak amid high demand for safe-havens, and then the dollar goes down amid aggressive monetary stimulus. Finally, at the third stage, the USD again should rise as the US economy leads ahead of other advanced economies.
To weaken the dollar, global GDP should be recovering evenly. However, the availability of vaccines and epidemiological conditions are different in different countries. So, the global economic recovery will hardly be even. According to Bloomberg research, rich countries will reach the vaccination level of 70-85% of the population required to return to normal life in August, the poor - only in 2024.
In March, the US position looked as exclusive as that of China, having effectively managed the pandemic during most of 2020. As a result, the greenback grew amid the US exclusivity just as the yuan did last year. In April, the dollar faced serious competition as the vaccination campaign progressed in the EU. Investors expect the growth gap between the EU and the US should narrow. However, the services PMI data prove the opposite. The US PMI is close to the highest levels since 1997, while the euro-area PMI doesn’t show consistent growth.
If the Fed in such conditions used the classical approach of the rate hikes, which Janet Yellen reminded about just the other day, I would not hesitate to recommend selling EURUSD. However, the Fed believes that strong economic growth is needed to offset the shock resulted from the pandemic, so monetary policy will remain ultra-easy for a long time. When the Fed hawks turn into doves, the dollar is pressed down.
Weekly EURUSD trading plan
I believe the market should continue testing the Fed’s strength. The US April jobs report will be a good test. Strong employment data will increase the risk of the Treasury yield growth and the EURUSD drop towards 1.196 and 1.193. Otherwise, if Treasury yields do not react, the euro will rise to a level above $1.2045.*
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-is-set-back-by-central-bank-forecast-as-of-06052021/?uid=285861726&cid=79634
Dynamics of services PMIs
Divergence in the economic expansion is a reason to sell the EURUSD. However, the Fed’s hawks turn into doves, and the euro bears are set back. Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
For some traders, the US dollar exchange rate is a puzzle; for others, the dollar price is, on the contrary, a clue to whether the Fed is right saying that the consumer price surge is temporary. If the Fed is wrong, and US inflation should be high for a long time, the central bank will have to raise the interest rate, supporting the dollar rally. Otherwise, if the Fed is right, the dollar will not rise even amid the US economic strength. I am glad about such a trend. The Forex pricing again depends on the monetary policy, rather than trade wars or pandemics.
The Fed is the primary obstacle setting back the EURUSD bears. If the US central bank acted in the old way, one could safely trade the ideas based on the dollar smile theory. The dollar smile theory suggests the greenback should strengthen at the recession peak amid high demand for safe-havens, and then the dollar goes down amid aggressive monetary stimulus. Finally, at the third stage, the USD again should rise as the US economy leads ahead of other advanced economies.
To weaken the dollar, global GDP should be recovering evenly. However, the availability of vaccines and epidemiological conditions are different in different countries. So, the global economic recovery will hardly be even. According to Bloomberg research, rich countries will reach the vaccination level of 70-85% of the population required to return to normal life in August, the poor - only in 2024.
In March, the US position looked as exclusive as that of China, having effectively managed the pandemic during most of 2020. As a result, the greenback grew amid the US exclusivity just as the yuan did last year. In April, the dollar faced serious competition as the vaccination campaign progressed in the EU. Investors expect the growth gap between the EU and the US should narrow. However, the services PMI data prove the opposite. The US PMI is close to the highest levels since 1997, while the euro-area PMI doesn’t show consistent growth.
If the Fed in such conditions used the classical approach of the rate hikes, which Janet Yellen reminded about just the other day, I would not hesitate to recommend selling EURUSD. However, the Fed believes that strong economic growth is needed to offset the shock resulted from the pandemic, so monetary policy will remain ultra-easy for a long time. When the Fed hawks turn into doves, the dollar is pressed down.
Weekly EURUSD trading plan
I believe the market should continue testing the Fed’s strength. The US April jobs report will be a good test. Strong employment data will increase the risk of the Treasury yield growth and the EURUSD drop towards 1.196 and 1.193. Otherwise, if Treasury yields do not react, the euro will rise to a level above $1.2045.*
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-is-set-back-by-central-bank-forecast-as-of-06052021/?uid=285861726&cid=79634
Dynamics of services PMIs
LiteFinance
Dollar gave in to temptation. Forecast as of 05.05.2021
Weekly US dollar fundamental forecast
The only way to get rid of temptation is to give in to it. Janet Yellen, the former chair of the Federal Reserve, now occupying the post of Treasury Secretary, clearly wanted to talk about monetary policy. And she finally gave in to the temptation by saying that interest rate hikes may be needed to stop the economy overheating as President Joe Biden’s spending plans boost growth. Being calmed by Jerome Powell's mantra that it was not time to think about winding down monetary stimulus, the markets woke up immediately. Tech stocks tumbled, followed by the S&P 500, and letting the US dollar strengthen.
Investors remember Donald Trump’s verbal interventions in monetary policy and the greenback exchange rate and how the US administration had to make excuses for him. Janet Yellen excused herself, saying that she did not forecast a federal funds rate hike and did not recommend the central bank to do anything. "If anybody appreciates the independence of the Fed, I think that person is me," Yellen said. Unlike Trump, Joe Biden and his team do not interfere in the activities of the Federal Reserve, understanding what turmoil in the financial markets this can lead to.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-gave-in-to-temptation-forecast-as-of-05052021/?uid=285861726&cid=79634
The reaction of stock indexes to hints at rate hikes
Weekly US dollar fundamental forecast
The only way to get rid of temptation is to give in to it. Janet Yellen, the former chair of the Federal Reserve, now occupying the post of Treasury Secretary, clearly wanted to talk about monetary policy. And she finally gave in to the temptation by saying that interest rate hikes may be needed to stop the economy overheating as President Joe Biden’s spending plans boost growth. Being calmed by Jerome Powell's mantra that it was not time to think about winding down monetary stimulus, the markets woke up immediately. Tech stocks tumbled, followed by the S&P 500, and letting the US dollar strengthen.
Investors remember Donald Trump’s verbal interventions in monetary policy and the greenback exchange rate and how the US administration had to make excuses for him. Janet Yellen excused herself, saying that she did not forecast a federal funds rate hike and did not recommend the central bank to do anything. "If anybody appreciates the independence of the Fed, I think that person is me," Yellen said. Unlike Trump, Joe Biden and his team do not interfere in the activities of the Federal Reserve, understanding what turmoil in the financial markets this can lead to.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-gave-in-to-temptation-forecast-as-of-05052021/?uid=285861726&cid=79634
The reaction of stock indexes to hints at rate hikes
LiteFinance
Euro has a plan. Forecast as of 04.05.2021
Fundamental euro forecast today
Italy, Greece, and Spain are running big budget deficits and planning to spend on a grand scale to revamp their economies. Italian Prime Minister Mario Draghi and other leaders in the region claim that increased investments can give lasting support to growth. If the plan doesn’t work, these countries will be saddled with some of the world’s highest debt ratios, potentially destabilizing the euro-area economy. After all, as long as things go according to the plan, the EURUSD bulls can go ahead.
Although the money from the European Recovery fund is not yet coming, and Brussels is criticized for the slow ratification process, the mechanism is already yielding the results, which is evident from the euro strengthening in April. The European Recovery Fund allowed Italy and other currency bloc members to have a reliable investment plan. Italy will receive €190 billion, including €70 billion in grants. Mario Draghi expects to add another € 60 billion from the local budget. It turns out to be quite a sum, allowing Italians to look to the future with optimism.
So, the stimulus, in addition to the acceleration of vaccination in the EU, supports the PMI growth. In April, the euro-area manufacturing PMI reached 62.9, the highest in the entire 24-year history of research. The sector is clearly booming as demand recovered so quickly that many products were in short supply. If we add to this the positive from retail sales in Germany, it becomes clear that the worst for the currency bloc is over, and the best is yet to come. But it will take several more months before the European economy features a clear improvement. According to the ECB Vice President Luis de Guindos, if the EU's ambitious plan to vaccinate 70% of the adult population is implemented, the central bank may start thinking about rolling back monetary stimulus.
The ECB may start unwinding the QE before the Fed takes active steps, which suggests a bullish outlook for the EURUSD. According to New York Fed President John Williams, the current data and conditions are not enough for the central bank to change its position. Jerome Powell recently argued that they need to see several months of positive data to show progress towards the Fed's goals. Is it possible that strong statistics on the US labor market for April will make adjustments to the Fed's outlook?
In my opinion, the euro is much stronger now than it was in the first quarter, but it is too early to give up on the greenback. May is seasonally a bad month for the S&P 500, whose drop amid the Treasury yield rally resulted from the strong US domestic data will lure investors back to safe-haven assets
EURUSD trading plan today
In the March-April period, the EURUSD had clear trends. In May, however, the pair can get stuck in the consolidation range, as both the euro and the dollar have their own benefits. If the price breaks out the resistance at 1.208, it could be relevant to enter longs. If the market breaks out the support level of 1.201, one could enter shorts.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-has-a-plan-forecast-as-of-04052021/?uid=285861726&cid=79634
Benefactors of European Recovery Fund
Fundamental euro forecast today
Italy, Greece, and Spain are running big budget deficits and planning to spend on a grand scale to revamp their economies. Italian Prime Minister Mario Draghi and other leaders in the region claim that increased investments can give lasting support to growth. If the plan doesn’t work, these countries will be saddled with some of the world’s highest debt ratios, potentially destabilizing the euro-area economy. After all, as long as things go according to the plan, the EURUSD bulls can go ahead.
Although the money from the European Recovery fund is not yet coming, and Brussels is criticized for the slow ratification process, the mechanism is already yielding the results, which is evident from the euro strengthening in April. The European Recovery Fund allowed Italy and other currency bloc members to have a reliable investment plan. Italy will receive €190 billion, including €70 billion in grants. Mario Draghi expects to add another € 60 billion from the local budget. It turns out to be quite a sum, allowing Italians to look to the future with optimism.
So, the stimulus, in addition to the acceleration of vaccination in the EU, supports the PMI growth. In April, the euro-area manufacturing PMI reached 62.9, the highest in the entire 24-year history of research. The sector is clearly booming as demand recovered so quickly that many products were in short supply. If we add to this the positive from retail sales in Germany, it becomes clear that the worst for the currency bloc is over, and the best is yet to come. But it will take several more months before the European economy features a clear improvement. According to the ECB Vice President Luis de Guindos, if the EU's ambitious plan to vaccinate 70% of the adult population is implemented, the central bank may start thinking about rolling back monetary stimulus.
The ECB may start unwinding the QE before the Fed takes active steps, which suggests a bullish outlook for the EURUSD. According to New York Fed President John Williams, the current data and conditions are not enough for the central bank to change its position. Jerome Powell recently argued that they need to see several months of positive data to show progress towards the Fed's goals. Is it possible that strong statistics on the US labor market for April will make adjustments to the Fed's outlook?
In my opinion, the euro is much stronger now than it was in the first quarter, but it is too early to give up on the greenback. May is seasonally a bad month for the S&P 500, whose drop amid the Treasury yield rally resulted from the strong US domestic data will lure investors back to safe-haven assets
EURUSD trading plan today
In the March-April period, the EURUSD had clear trends. In May, however, the pair can get stuck in the consolidation range, as both the euro and the dollar have their own benefits. If the price breaks out the resistance at 1.208, it could be relevant to enter longs. If the market breaks out the support level of 1.201, one could enter shorts.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-has-a-plan-forecast-as-of-04052021/?uid=285861726&cid=79634
Benefactors of European Recovery Fund
LiteFinance
Fed presses down the dollar. Forecast as of 29.04.2021
The Federal Reserve said what the market wanted to hear, which has weakened the greenback. Nonetheless, the euro is strengthening not only because of the dollar weakness. The single European currency has its own benefits, and there could emerge fresh growth drivers. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Monthly US dollar fundamental forecast
It's good when you have a choice. Jerome Powell certainly had a choice. The Fed could follow the example of the Bank of Canada, announcing a reduction or at least hinting at a reduction in the QE pace. Or the US central bank could follow the path of the ECB, claiming that it is too early to consider finishing the monetary stimulus. Calling the QE end premature, Christine Lagarde managed to discourage the euro bulls for some time. Repeating Lagarde’s words, the Fed chairman has accelerated the US dollar decline. As a result, the EURUSD reached the first of the two previously set targets at 1.2155 and 1.218 and, it seems to continue the rally.
According to Jerome Powell, an excellent jobs market report for March is not enough to start discussing paring back its $120 billion a month bond-buying program. It is too early. The Fed is not close to its targets. The recent inflation rise resulted from temporary factors, and the central bank is not concerned by the growing inflation expectations. Furthermore, the Fed wants to see a further increase in inflation expectations to decide on the monetary policy changes.
Markets heard what they wanted to hear, which led to a drop in Treasury yields and a weakening greenback. At the same time, the question of how the Fed's outlook will change as the US domestic data improve has not been removed from the agenda. Jerome Powell promised to warn the markets long before the start of the monetary stimulus reduction. Bloomberg believes that the tapering of QE will start in the first quarter of 2022, and the FOMC should start discussing monetary tightening in early summer. In this regard, US GDP strong data may once again bring Treasury yields back to growth. According to Bloomberg polls, the economy expanded by 6.7%, driven by a whopping 10.5% increase in consumer spending, the best since the 1960s.
After all, I still believe the factor of the US GDP surge has already been priced in the EURUSD, and investors should be focused on the vaccination rates. The vaccination rate is declining in the US, as people willing to inoculate have already received their doses. Some people are not sure about vaccination or are unwilling to receive the injections. In Europe, on the contrary, the vaccination campaign is progressing.
In the summer, the euro may have a new advantage. In the autumn, the chancellor will change in Germany since Angela Merkel is no longer applying for this position. If сo-leader of the Green party Annalena Baerbock comes to power, the prevailing ideology of ordoliberalism in the country, which considers duty almost immoral, may be abandoned. If Berlin begins to support its own economy with massive stimulus, as Joe Biden does, divergence in growth with the United States will narrow, and EURUSD will rise.
Monthly EURUSD trading plan
After all, investors are now focused on the publication of the US and euro-area GDP data for the first quarter. Will the Treasury yields rally resume, and how will the euro react to the double-dip recession in the euro area? I believe it is relevant to hold the EURUSD longs entered at the level of 1.193 and add up to the positions on the corrections. The expected target for the next three or four weeks is up from 1.218 to 1.23.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/fed-presses-down-the-dollar-forecast-as-of-29042021/?uid=285861726&cid=79634
Dynamics of US GDP
The Federal Reserve said what the market wanted to hear, which has weakened the greenback. Nonetheless, the euro is strengthening not only because of the dollar weakness. The single European currency has its own benefits, and there could emerge fresh growth drivers. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Monthly US dollar fundamental forecast
It's good when you have a choice. Jerome Powell certainly had a choice. The Fed could follow the example of the Bank of Canada, announcing a reduction or at least hinting at a reduction in the QE pace. Or the US central bank could follow the path of the ECB, claiming that it is too early to consider finishing the monetary stimulus. Calling the QE end premature, Christine Lagarde managed to discourage the euro bulls for some time. Repeating Lagarde’s words, the Fed chairman has accelerated the US dollar decline. As a result, the EURUSD reached the first of the two previously set targets at 1.2155 and 1.218 and, it seems to continue the rally.
According to Jerome Powell, an excellent jobs market report for March is not enough to start discussing paring back its $120 billion a month bond-buying program. It is too early. The Fed is not close to its targets. The recent inflation rise resulted from temporary factors, and the central bank is not concerned by the growing inflation expectations. Furthermore, the Fed wants to see a further increase in inflation expectations to decide on the monetary policy changes.
Markets heard what they wanted to hear, which led to a drop in Treasury yields and a weakening greenback. At the same time, the question of how the Fed's outlook will change as the US domestic data improve has not been removed from the agenda. Jerome Powell promised to warn the markets long before the start of the monetary stimulus reduction. Bloomberg believes that the tapering of QE will start in the first quarter of 2022, and the FOMC should start discussing monetary tightening in early summer. In this regard, US GDP strong data may once again bring Treasury yields back to growth. According to Bloomberg polls, the economy expanded by 6.7%, driven by a whopping 10.5% increase in consumer spending, the best since the 1960s.
After all, I still believe the factor of the US GDP surge has already been priced in the EURUSD, and investors should be focused on the vaccination rates. The vaccination rate is declining in the US, as people willing to inoculate have already received their doses. Some people are not sure about vaccination or are unwilling to receive the injections. In Europe, on the contrary, the vaccination campaign is progressing.
In the summer, the euro may have a new advantage. In the autumn, the chancellor will change in Germany since Angela Merkel is no longer applying for this position. If сo-leader of the Green party Annalena Baerbock comes to power, the prevailing ideology of ordoliberalism in the country, which considers duty almost immoral, may be abandoned. If Berlin begins to support its own economy with massive stimulus, as Joe Biden does, divergence in growth with the United States will narrow, and EURUSD will rise.
Monthly EURUSD trading plan
After all, investors are now focused on the publication of the US and euro-area GDP data for the first quarter. Will the Treasury yields rally resume, and how will the euro react to the double-dip recession in the euro area? I believe it is relevant to hold the EURUSD longs entered at the level of 1.193 and add up to the positions on the corrections. The expected target for the next three or four weeks is up from 1.218 to 1.23.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/fed-presses-down-the-dollar-forecast-as-of-29042021/?uid=285861726&cid=79634
Dynamics of US GDP
LiteFinance
EURUSD is playing catch-up. Forecast as of 28.04.2021
Weekly euro fundamental forecast
Hope for the best, but prepare for the worst. Is the market ready for the Fed's optimism and Jerome Powell's hints at the monetary policy normalization? I strongly doubt it. The central bank convinced investors in its willingness to put up with high inflation and maintain monetary stimulus. Therefore, the Treasury yield dropped to six-week lows. Now, the US bond yields are rising again, encouraging the EURUSD bears.
Ahead of the FOMC April meeting results, the euro-dollar got stuck in a narrow trading range of 1.2055-1.211. Investors are sure they know what Jerome Powell will say, but what if something goes wrong? One wrong phrase can result in turmoil in financial markets. The Fed chairman must admit that economic growth is accelerating, but the unemployment rate is still too high. Powell has to say that this is a rebound, but not a recovery yet. The US economy has still not recovered from the pandemic.
There are hardly any chances that the Fed Chair will talk about QE tapering in April. First, the Fed doesn’t want to repeat the taper tantrum of 2013 when Ben Bernanke announced the reduction in the volume of asset purchases and provoked a real panic in the financial markets. Second, the Fed is traditionally less aggressive than the CME derivatives or Bloomberg experts. Most of the latter expect the $120-billion program to wind down in the fourth quarter.Despite the improvement in the US economic situation, there are still many problems, and the central bank can afford to be patient. However, if inflation will be up to 3.5% in May-June amid high commodity prices, the best GDP growth over the past four decades, and the enormous deferred demand, the Fed will have to take active steps. After all, according to the PIMCO, the US PMI will slow down in the third and fourth quarters, which, along with resolving supply problems, will return the CPI to 2.1% by the end of 2021. It seems that the best way out for the Fed is to wait and see not to worsen the situation. Let the Treasury yields grow along with the PMI!
I do not think the Treasury yields rally will press down the EURUSD bulls as much as in March. French Finance Minister Bruno Le Maire warns that the EU must remain in the race while China has resumed its growth and the U.S. is booming. The EU governments have lost too much time in the adoption of the European Recovery Plan. The euro area must catch up.
Weekly EURUSD trading plan
Playing catch-up now is not the same as in the first quarter when the euro crashed amid the slow vaccination and the double-dip recession in the euro area. Even if the EURUSD, having broken the lower edge of the short-term consolidation range of 1.2055-1.211, starts correcting down, it will be relevant to buy the pair on the rebound up from the supports at 1.2045, 1.2, and 1.1965.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-is-playing-catch-up-forecast-as-of-28042021/?uid=285861726&cid=79634
Economists’ forecasts for the terms of QE tapering
Weekly euro fundamental forecast
Hope for the best, but prepare for the worst. Is the market ready for the Fed's optimism and Jerome Powell's hints at the monetary policy normalization? I strongly doubt it. The central bank convinced investors in its willingness to put up with high inflation and maintain monetary stimulus. Therefore, the Treasury yield dropped to six-week lows. Now, the US bond yields are rising again, encouraging the EURUSD bears.
Ahead of the FOMC April meeting results, the euro-dollar got stuck in a narrow trading range of 1.2055-1.211. Investors are sure they know what Jerome Powell will say, but what if something goes wrong? One wrong phrase can result in turmoil in financial markets. The Fed chairman must admit that economic growth is accelerating, but the unemployment rate is still too high. Powell has to say that this is a rebound, but not a recovery yet. The US economy has still not recovered from the pandemic.
There are hardly any chances that the Fed Chair will talk about QE tapering in April. First, the Fed doesn’t want to repeat the taper tantrum of 2013 when Ben Bernanke announced the reduction in the volume of asset purchases and provoked a real panic in the financial markets. Second, the Fed is traditionally less aggressive than the CME derivatives or Bloomberg experts. Most of the latter expect the $120-billion program to wind down in the fourth quarter.Despite the improvement in the US economic situation, there are still many problems, and the central bank can afford to be patient. However, if inflation will be up to 3.5% in May-June amid high commodity prices, the best GDP growth over the past four decades, and the enormous deferred demand, the Fed will have to take active steps. After all, according to the PIMCO, the US PMI will slow down in the third and fourth quarters, which, along with resolving supply problems, will return the CPI to 2.1% by the end of 2021. It seems that the best way out for the Fed is to wait and see not to worsen the situation. Let the Treasury yields grow along with the PMI!
I do not think the Treasury yields rally will press down the EURUSD bulls as much as in March. French Finance Minister Bruno Le Maire warns that the EU must remain in the race while China has resumed its growth and the U.S. is booming. The EU governments have lost too much time in the adoption of the European Recovery Plan. The euro area must catch up.
Weekly EURUSD trading plan
Playing catch-up now is not the same as in the first quarter when the euro crashed amid the slow vaccination and the double-dip recession in the euro area. Even if the EURUSD, having broken the lower edge of the short-term consolidation range of 1.2055-1.211, starts correcting down, it will be relevant to buy the pair on the rebound up from the supports at 1.2045, 1.2, and 1.1965.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-is-playing-catch-up-forecast-as-of-28042021/?uid=285861726&cid=79634
Economists’ forecasts for the terms of QE tapering
LiteFinance
Dollar: trust and test! Forecast as of 27.04.2021
Weekly US dollar fundamental forecast
The weak German business climate index, the dovish stance of the ECB officials, and the hawkish shift in the forecasts of Bloomberg experts concerning the start of tapering the US QE didn’t allow the EURUSD bulls to consolidate the price at the bottom of figure 21. Nordea Markets notes that the markets underestimate the possibility of a quick return of unemployment to pre-pandemic levels, the ability of inflation to stay above 2% for a long time, and the risks of an earlier start of the Fed's monetary policy normalization. If so, it's time to buy the US dollar. If everything were so simple ...
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-trust-and-test-forecast-as-of-27042021/?uid=285861726&cid=79634
Dynamics of Fed interest rate and expected changes implied by market sentiment
Weekly US dollar fundamental forecast
The weak German business climate index, the dovish stance of the ECB officials, and the hawkish shift in the forecasts of Bloomberg experts concerning the start of tapering the US QE didn’t allow the EURUSD bulls to consolidate the price at the bottom of figure 21. Nordea Markets notes that the markets underestimate the possibility of a quick return of unemployment to pre-pandemic levels, the ability of inflation to stay above 2% for a long time, and the risks of an earlier start of the Fed's monetary policy normalization. If so, it's time to buy the US dollar. If everything were so simple ...
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-trust-and-test-forecast-as-of-27042021/?uid=285861726&cid=79634
Dynamics of Fed interest rate and expected changes implied by market sentiment
LiteFinance
When will the dollar turn off the money flow? Forecast as of 26.04.2021
Successful vaccination and explosive GDP growth give the Fed reasons to consider the tapering of the QE. Nonetheless, the experience of the taper tantrum in 2013 suggests it will not be easy. Will Jerome Powell solve the task? Let us discuss the Forex outlook and make up a EURUSD trading plan.
Weekly US dollar fundamental forecast
In March, the US dollar grew amid the US exclusivity, and investors admired the vaccination speed and the US economic rebound. In April, everything has dramatically changed. The exclusivity fades as many countries are speeding up vaccination campaigns, and their economies are set to grow rapidly during the rest of the year. In addition to the WHO announcement that the number of coronavirus cases is increasing in all regions of the world except Europe, this circumstance allowed the EURUSD bulls to drive the price above the base of figure 21.
About 68% of the adult population received at least one dose of the coronavirus vaccine in the USA. Furthermore, the US services PMI hit an all-time high of 63.1 in April. However, investors will hardly be surprised with these data. Another matter is strong economic data in the euro area. The euro-area manufacturing PMI has hit its all-time high, and the services PMI has exceeded level 50 for the first time in eight months, indicating the economic expansion.
According to Bloomberg experts, the euro-area GDP contracted by 0.8% Q-o-Q in the first quarter, which means the currency bloc should face a double-dip recession. Nonetheless, the downturn resulted from lockdowns is temporary, which is proven by the euro-area PMI data.
The euro-area positive PMI data, the increase in the vaccination speed, the seasonal pandemic decline in Europe are likely to affect the Governing Council’s decisions in the near future. According to Bloomberg’s source familiar with the matter, the ECB April meeting was relatively calm, but there should be a heated debate at the next meeting on June 10. Some ECB officials call for the PEPP reduction already in the third quarter.
The Fed, whose meeting along with the publication of the US and European GDP data will become the highlights of the current week, has a different task. The major experience the Fed has drawn from the 2013 taper tantrum is that there are limits to the central bank's ability to calm financial markets amid a move towards tighter monetary policy. The main question that will be discussed at the next FOMC meetings is how to inform investors about turning off the money flow correctly. In my opinion, despite the success of the US economy, it will be pretty easy for Jerome Powell to reassure investors now, as the US fight against the pandemic has not finished yet.
If the Fed Chair does not scare financial markets, and his speech at the press conference does not result in the Treasury yields rally, speculators will be able to sell the US dollar further.
Weekly EURUSD trading plan
I believe the factors of the euro-area double-dip recession and the US GDP surge in the first quarter have already been priced in the EURUSD. Therefore, if the actual data will be close to the forecasts, one could buy the pair on the correction with the buy targets at 1.2155 and 1.218 suggested earlier.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/when-will-the-dollar-turn-off-the-money-flow-forecast-as-of-26042021/?uid=285861726&cid=79634
Dynamics of euro-area PMIs
Successful vaccination and explosive GDP growth give the Fed reasons to consider the tapering of the QE. Nonetheless, the experience of the taper tantrum in 2013 suggests it will not be easy. Will Jerome Powell solve the task? Let us discuss the Forex outlook and make up a EURUSD trading plan.
Weekly US dollar fundamental forecast
In March, the US dollar grew amid the US exclusivity, and investors admired the vaccination speed and the US economic rebound. In April, everything has dramatically changed. The exclusivity fades as many countries are speeding up vaccination campaigns, and their economies are set to grow rapidly during the rest of the year. In addition to the WHO announcement that the number of coronavirus cases is increasing in all regions of the world except Europe, this circumstance allowed the EURUSD bulls to drive the price above the base of figure 21.
About 68% of the adult population received at least one dose of the coronavirus vaccine in the USA. Furthermore, the US services PMI hit an all-time high of 63.1 in April. However, investors will hardly be surprised with these data. Another matter is strong economic data in the euro area. The euro-area manufacturing PMI has hit its all-time high, and the services PMI has exceeded level 50 for the first time in eight months, indicating the economic expansion.
According to Bloomberg experts, the euro-area GDP contracted by 0.8% Q-o-Q in the first quarter, which means the currency bloc should face a double-dip recession. Nonetheless, the downturn resulted from lockdowns is temporary, which is proven by the euro-area PMI data.
The euro-area positive PMI data, the increase in the vaccination speed, the seasonal pandemic decline in Europe are likely to affect the Governing Council’s decisions in the near future. According to Bloomberg’s source familiar with the matter, the ECB April meeting was relatively calm, but there should be a heated debate at the next meeting on June 10. Some ECB officials call for the PEPP reduction already in the third quarter.
The Fed, whose meeting along with the publication of the US and European GDP data will become the highlights of the current week, has a different task. The major experience the Fed has drawn from the 2013 taper tantrum is that there are limits to the central bank's ability to calm financial markets amid a move towards tighter monetary policy. The main question that will be discussed at the next FOMC meetings is how to inform investors about turning off the money flow correctly. In my opinion, despite the success of the US economy, it will be pretty easy for Jerome Powell to reassure investors now, as the US fight against the pandemic has not finished yet.
If the Fed Chair does not scare financial markets, and his speech at the press conference does not result in the Treasury yields rally, speculators will be able to sell the US dollar further.
Weekly EURUSD trading plan
I believe the factors of the euro-area double-dip recession and the US GDP surge in the first quarter have already been priced in the EURUSD. Therefore, if the actual data will be close to the forecasts, one could buy the pair on the correction with the buy targets at 1.2155 and 1.218 suggested earlier.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/when-will-the-dollar-turn-off-the-money-flow-forecast-as-of-26042021/?uid=285861726&cid=79634
Dynamics of euro-area PMIs
LiteFinance
Euro lands on solid ground. Forecast as of 23.04.2021
Weekly euro fundamental forecast
Christine Lagarde’s willingness to keep interest rates and coronavirus stimulus unchanged made the EURUSD bulls step back but didn’t discourage them from buying the euro. The price drop to the bottom of figure 20 is immediately bought out, which signals a dramatic change in investor sentiment compared to March. Although ECB insists that the euro-area economy needs support, its rebound will make the central bank correct monetary policy.
According to Lagarde, the euro-area economy still has a long way to go before it crosses the bridge of the pandemic and lands on solid ground so that the central bank could start phasing out asset purchases under the PEPP. Recently, the weekly pace of asset purchases has increased from €14 billion to €17 billion. Before the Governing Council’s meeting, some analysts expected the ECB hawks to call for phasing out the bond purchase volumes. Lagarde says this matter is premature to talk about.
The ECB president made two more attempts to discourage the EURUSD bulls. She noted that the ECB closely followed the euro exchange rate and stressed the factors of divergence in monetary policy and economic growth. “But if you look where the Fed is and where we are. And when you look at expectations in the U.S. and expectations in the euro area. We are not on the same page”, said Lagarde. This phrase can be taken as a hint that the European Central Bank will begin to phase out stimulus later than the Federal Reserve since the euro-area economy lags behind the US one. JP Morgan estimates that the European GDP will grow by 6% in the second quarter, after a 1% drop in the first. For the US, the growth expectations for the same periods are + 10% and + 5%.
Of course, Christine Lagarde did her best to discourage the EURUSD bulls. Moreover, the euro sellers should have been supported by the fears of raising the tax rate for wealthy Americans from 20% to 39.6%, which pressed down the US stock indexes. However, the euro remains stable, suggesting the trend to be up. Euro buyers just need a new driver, and one could come up in the next few hours. I mean the release of the euro-area PMI data. The preliminary PMI estimates for April are weaker than the actual data for March, but the acceleration of the vaccine rollouts in the EU could add optimism to both manufacturers and service providers.
Weekly EURUSD trading plan
I believe the EURUSD bears will hardly take control over the market unless the US Treasury yields resume growing. Moreover, the US bond yields should remain under pressure as investors expect Jerome Powell to express at the FOMC April meeting the same ideas as Christine Lagarde did. Powell should suggest that it is preliminary to talk about phasing out the QE. If so, it is still relevant to buy the euro on the price rebound from the support levels of $1.199-$1.2 and $1.1935-$1.194. It is also relevant to enter longs when the price breaks through recent highs. The rally could start if the report on the euro-area PMI is strong.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-lands-on-solid-ground-forecast-as-of-23042021/?uid=285861726&cid=79634
Dynamics of weekly pace of ECB asset purchases under PEPP
Weekly euro fundamental forecast
Christine Lagarde’s willingness to keep interest rates and coronavirus stimulus unchanged made the EURUSD bulls step back but didn’t discourage them from buying the euro. The price drop to the bottom of figure 20 is immediately bought out, which signals a dramatic change in investor sentiment compared to March. Although ECB insists that the euro-area economy needs support, its rebound will make the central bank correct monetary policy.
According to Lagarde, the euro-area economy still has a long way to go before it crosses the bridge of the pandemic and lands on solid ground so that the central bank could start phasing out asset purchases under the PEPP. Recently, the weekly pace of asset purchases has increased from €14 billion to €17 billion. Before the Governing Council’s meeting, some analysts expected the ECB hawks to call for phasing out the bond purchase volumes. Lagarde says this matter is premature to talk about.
The ECB president made two more attempts to discourage the EURUSD bulls. She noted that the ECB closely followed the euro exchange rate and stressed the factors of divergence in monetary policy and economic growth. “But if you look where the Fed is and where we are. And when you look at expectations in the U.S. and expectations in the euro area. We are not on the same page”, said Lagarde. This phrase can be taken as a hint that the European Central Bank will begin to phase out stimulus later than the Federal Reserve since the euro-area economy lags behind the US one. JP Morgan estimates that the European GDP will grow by 6% in the second quarter, after a 1% drop in the first. For the US, the growth expectations for the same periods are + 10% and + 5%.
Of course, Christine Lagarde did her best to discourage the EURUSD bulls. Moreover, the euro sellers should have been supported by the fears of raising the tax rate for wealthy Americans from 20% to 39.6%, which pressed down the US stock indexes. However, the euro remains stable, suggesting the trend to be up. Euro buyers just need a new driver, and one could come up in the next few hours. I mean the release of the euro-area PMI data. The preliminary PMI estimates for April are weaker than the actual data for March, but the acceleration of the vaccine rollouts in the EU could add optimism to both manufacturers and service providers.
Weekly EURUSD trading plan
I believe the EURUSD bears will hardly take control over the market unless the US Treasury yields resume growing. Moreover, the US bond yields should remain under pressure as investors expect Jerome Powell to express at the FOMC April meeting the same ideas as Christine Lagarde did. Powell should suggest that it is preliminary to talk about phasing out the QE. If so, it is still relevant to buy the euro on the price rebound from the support levels of $1.199-$1.2 and $1.1935-$1.194. It is also relevant to enter longs when the price breaks through recent highs. The rally could start if the report on the euro-area PMI is strong.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-lands-on-solid-ground-forecast-as-of-23042021/?uid=285861726&cid=79634
Dynamics of weekly pace of ECB asset purchases under PEPP
LiteFinance
Euro throws out a feeler. Forecast as of 22.04.2021
Weekly euro fundamental forecast
Central banks do not act in isolation, they follow general trends. The trend is usually determined by the Fed. However, if the Fed is willing to remain passive and allow the US economy to overheat, why shouldn’t another central bank go ahead? The Bank of Canada's optimism about the prospects for domestic GDP, its hints about an overnight rate hike in late 2022, and the move to tapering the QE support not only the loonie but also other G10 currencies competing with the US dollar. There could be a different leader among central banks.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-throws-out-a-feeler-forecast-as-of-22042021/?uid=285861726&cid=79634
ECB weekly PEPP purchases
Weekly euro fundamental forecast
Central banks do not act in isolation, they follow general trends. The trend is usually determined by the Fed. However, if the Fed is willing to remain passive and allow the US economy to overheat, why shouldn’t another central bank go ahead? The Bank of Canada's optimism about the prospects for domestic GDP, its hints about an overnight rate hike in late 2022, and the move to tapering the QE support not only the loonie but also other G10 currencies competing with the US dollar. There could be a different leader among central banks.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-throws-out-a-feeler-forecast-as-of-22042021/?uid=285861726&cid=79634
ECB weekly PEPP purchases
LiteFinance
Euro is catching up. Forecast as of 20.04.2021
Slow vaccination in the euro area discouraged the euro buyers. However, investment ideas, popular in late 2020, are coming back this April. The EU governments accelerate the vaccination rollouts. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Fundamental euro forecast for six months
This cannot be, because it cannot be! That is what a racer thinks when he/she sees in the rear-view mirror a competitor whom he/she seemed to have outrun enough to forget about. The EU is increasing the vaccination speed, the German bond yields are catching up with the US peers, and the euro is strengthening. As a result, banks upgrade their forecasts for the EURUSD, options market signals higher risk reversals, being evidence of the euro bullish sentiment.
The euro should not have been strengthening as the euro area must face a double-dip recession, the European economies are locked down, and the share of the EU population received at least one dose of COVID-19 vaccine is 25.1% compared to 63.2 % in the USA. Nonetheless, the markets are not interested in the cooling dish, serve it hot. They do not want to buy the past, being interested in the future. The increase in the vaccination rate in Europe will return the trading ideas that were popular in late 2020. Yes, the USA is the locomotive of global economic growth in 2021, but it supports the rest of the world.
In this regard, the information that Pfizer will increase the supply of vaccines to the European Union by 100 million doses was enough to push the EURUSD up to 1.206. Goldman Sachs expects the largest four countries in the eurozone to vaccinate 37% of their population by the end of May, and this figure will be up to 54% in a month. As a result, the bank raised its forecast for the euro from $1.21 to $1.25 by the end of December.
The vaccination speed directly affects the opening up of the economy and the rate of its recovery. Accordingly, it also determines the bond yields. The Treasury yield growth in 2021 has significantly exceeded the German bond yields. However, the gap starts narrowing, encouraging the EURUSD bulls.
An important EURUSD growth driver is the return of faith in the euro. Since the beginning of 2021, hedge funds have reduced the euro longs down to annual lows, while Bloomberg experts have downgraded their forecasts for the euro-dollar. The latest consensus estimate suggests that EURUSD will rise to 1.22, although back in January most of them suggested 1.25. Due to the slow vaccination and the success of the US economy, the euro was weakening, but Forex is not a place where you can lose it in one day and not be able to recover for years. Investor sentiment is rapidly changing, and in April, the dollar finally saw its main rival in the rearview mirror.
EURUSD trading plan for six months
It is pleasant when investment ideas work out. I have many times written that the Forex situation should radically change in April, compared to March. I recommended entering the EURUSD longs on the breakout of the resistance at 1.1935 with targets at 1.204 and 1.208. The first target has already been achieved, the second one should soon be reached too. I suppose the euro will reach $1.25 in 2021, so it is relevant to buy.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-is-catching-up-forecast-as-of-20042021/?uid=285861726&cid=79634
Dynamics of government bond yields in Germany and USA
Slow vaccination in the euro area discouraged the euro buyers. However, investment ideas, popular in late 2020, are coming back this April. The EU governments accelerate the vaccination rollouts. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Fundamental euro forecast for six months
This cannot be, because it cannot be! That is what a racer thinks when he/she sees in the rear-view mirror a competitor whom he/she seemed to have outrun enough to forget about. The EU is increasing the vaccination speed, the German bond yields are catching up with the US peers, and the euro is strengthening. As a result, banks upgrade their forecasts for the EURUSD, options market signals higher risk reversals, being evidence of the euro bullish sentiment.
The euro should not have been strengthening as the euro area must face a double-dip recession, the European economies are locked down, and the share of the EU population received at least one dose of COVID-19 vaccine is 25.1% compared to 63.2 % in the USA. Nonetheless, the markets are not interested in the cooling dish, serve it hot. They do not want to buy the past, being interested in the future. The increase in the vaccination rate in Europe will return the trading ideas that were popular in late 2020. Yes, the USA is the locomotive of global economic growth in 2021, but it supports the rest of the world.
In this regard, the information that Pfizer will increase the supply of vaccines to the European Union by 100 million doses was enough to push the EURUSD up to 1.206. Goldman Sachs expects the largest four countries in the eurozone to vaccinate 37% of their population by the end of May, and this figure will be up to 54% in a month. As a result, the bank raised its forecast for the euro from $1.21 to $1.25 by the end of December.
The vaccination speed directly affects the opening up of the economy and the rate of its recovery. Accordingly, it also determines the bond yields. The Treasury yield growth in 2021 has significantly exceeded the German bond yields. However, the gap starts narrowing, encouraging the EURUSD bulls.
An important EURUSD growth driver is the return of faith in the euro. Since the beginning of 2021, hedge funds have reduced the euro longs down to annual lows, while Bloomberg experts have downgraded their forecasts for the euro-dollar. The latest consensus estimate suggests that EURUSD will rise to 1.22, although back in January most of them suggested 1.25. Due to the slow vaccination and the success of the US economy, the euro was weakening, but Forex is not a place where you can lose it in one day and not be able to recover for years. Investor sentiment is rapidly changing, and in April, the dollar finally saw its main rival in the rearview mirror.
EURUSD trading plan for six months
It is pleasant when investment ideas work out. I have many times written that the Forex situation should radically change in April, compared to March. I recommended entering the EURUSD longs on the breakout of the resistance at 1.1935 with targets at 1.204 and 1.208. The first target has already been achieved, the second one should soon be reached too. I suppose the euro will reach $1.25 in 2021, so it is relevant to buy.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-is-catching-up-forecast-as-of-20042021/?uid=285861726&cid=79634
Dynamics of government bond yields in Germany and USA
LiteFinance
Will the EURUSD rally continue? Forecast as of 19.04.2021
The decline in the Treasury yields and the S&P 500 rally create a favorable foreign environment for the EURUSD. However, the uptrend will hardly be steady without positive news from Europe. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
Christine Lagarde compared the euro area with a patient walking out of intensive care with the support of two crutches. However, many patients recover much faster than doctors expect them to. The vaccination speed in Europe is increasing, and there were more than 100 million doses injected in the week ended April 16. So, the EURUSD bulls can well go ahead. Good news from Europe will support the euro rally.
Expectations of the ECB dovish rhetoric and weak forecasts for the euro-area PMI in April set back the euro bulls. Although Klaas Knot, the Dutch Central Bank president, calls for the reduction of asset purchases under the PEPP already in the third quarter, the majority of the Governing Council members are likely to avoid the grandstanding. At its previous monetary policy meeting in March, the ECB decided to increase the bond purchase pace. Since then, adjusting for the Easter holidays, the central bank has bought €19 billion of bonds a week, compared with a weekly average of €15 billion earlier in the year. The ECB doves may want more looking at the growth of the European bond yields, however, such actions can be based on both right and wrong reasons. On the one hand, it is suggested by the euro-area economic recovery. On the other hand, the rally of the European bond yields results from the outer reasons.
The divergence in the growth on government bond yields has been the key driver of the EURUSD strengthening in mid-April. Furthermore, positive news from Europe could support the euro rally. Based on the economic surprise index, the euro now looks a bit undervalued against the US dollar.
In March, many US economic reports were disappointing, which allowed divergences to appear in the chart. At the same time, the modest forecasts for the euro area allow us to expect that their exceeding the actual data will encourage the EURUSD bulls to go ahead.
Now, the EURUSD buyers are discouraged by the euro's inability to strengthen against a favorable background. The Treasury yields are going down, the stock indexes hit new all-time highs, pressing down the greenback. Investors wonder what if the S&P 500 starts a correction. In fact, history proves that the stock market rallied 14 out of the last 15 times in a year when 90% of the companies in its calculation base traded above the 50-day moving average, which is still the case at present.
Weekly EURUSD trading plan
There will hardly be a deep correction of the US stock indexes. Consumers, according to research by Moody's, have accumulated $ 5.4 trillion in extra savings, and most of this comes from the USA. A favorable foreign environment and the expectations of positive news from the euro area will allow entering the EURUSD long positions on the correction towards 1.193 and 1.188. It is still relevant to buy the euro on the breakout of the resistance at $1.199.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/will-the-eurusd-rally-continue-forecast-as-of-19042021/?uid=285861726&cid=79634
Dynamics of EURUSD and economic surprise index
The decline in the Treasury yields and the S&P 500 rally create a favorable foreign environment for the EURUSD. However, the uptrend will hardly be steady without positive news from Europe. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
Christine Lagarde compared the euro area with a patient walking out of intensive care with the support of two crutches. However, many patients recover much faster than doctors expect them to. The vaccination speed in Europe is increasing, and there were more than 100 million doses injected in the week ended April 16. So, the EURUSD bulls can well go ahead. Good news from Europe will support the euro rally.
Expectations of the ECB dovish rhetoric and weak forecasts for the euro-area PMI in April set back the euro bulls. Although Klaas Knot, the Dutch Central Bank president, calls for the reduction of asset purchases under the PEPP already in the third quarter, the majority of the Governing Council members are likely to avoid the grandstanding. At its previous monetary policy meeting in March, the ECB decided to increase the bond purchase pace. Since then, adjusting for the Easter holidays, the central bank has bought €19 billion of bonds a week, compared with a weekly average of €15 billion earlier in the year. The ECB doves may want more looking at the growth of the European bond yields, however, such actions can be based on both right and wrong reasons. On the one hand, it is suggested by the euro-area economic recovery. On the other hand, the rally of the European bond yields results from the outer reasons.
The divergence in the growth on government bond yields has been the key driver of the EURUSD strengthening in mid-April. Furthermore, positive news from Europe could support the euro rally. Based on the economic surprise index, the euro now looks a bit undervalued against the US dollar.
In March, many US economic reports were disappointing, which allowed divergences to appear in the chart. At the same time, the modest forecasts for the euro area allow us to expect that their exceeding the actual data will encourage the EURUSD bulls to go ahead.
Now, the EURUSD buyers are discouraged by the euro's inability to strengthen against a favorable background. The Treasury yields are going down, the stock indexes hit new all-time highs, pressing down the greenback. Investors wonder what if the S&P 500 starts a correction. In fact, history proves that the stock market rallied 14 out of the last 15 times in a year when 90% of the companies in its calculation base traded above the 50-day moving average, which is still the case at present.
Weekly EURUSD trading plan
There will hardly be a deep correction of the US stock indexes. Consumers, according to research by Moody's, have accumulated $ 5.4 trillion in extra savings, and most of this comes from the USA. A favorable foreign environment and the expectations of positive news from the euro area will allow entering the EURUSD long positions on the correction towards 1.193 and 1.188. It is still relevant to buy the euro on the breakout of the resistance at $1.199.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/will-the-eurusd-rally-continue-forecast-as-of-19042021/?uid=285861726&cid=79634
Dynamics of EURUSD and economic surprise index
LiteFinance
Dollar is covering the tracks. Forecast as of 16.04.2021
When the world economy is about to rebound, the EURUSD should not fall in response to the US strong domestic data. However, the euro dropped on April 15. What’s the matter? What will happen next? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
Live and learn. The financial markets’ reaction to the release of US strong economic data was the same as to the US March jobs report. The S&P 500 hit a new all-time high for the 22nd time in 2021, and Treasury yields fell. However, the dollar has suddenly strengthened. Nonetheless, the greenback didn’t immediately weaken in early April too. It dropped on the next day. Will the recent history repeat itself?
The US economy is strong. Retail sales jumped 9.8% M-o-M in March, which was the best performance over the last 10 months; industrial production rose 2.7%, and the number of jobless claims fell to the lowest level since the pandemic started. There is no longer any doubt about the rapid growth of US GDP in the second quarter. The worst drop in 10-year Treasury bond yield since the beginning of November looks surprising. It could be explained by the Japanese buyers’ return to the US bond market; they were actively selling Treasuries at the end of the fiscal year in their country. Another reason is that hedge funds have offloaded more than $100 billion of the securities since the start of January.
The world’s most significant sell-off of US government bonds so far in 2021 has been in the financial center of the Cayman Islands, well known as a domicile for leveraged accounts. According to Treasury Department data, Investors there dumped $62 billion of US sovereign bonds in February, after selling $49 billion in January.
In fact, if debt market rates continue to decline despite the rapid growth of the US economy, this, on the one hand, will confirm the Fed's words about a temporary surge in inflation. On the other hand, it will increase the global risk appetite. Both factors are bearish for the USD index. Investors may need time to realize this fact and resume EURUSD purchases.
China’s mixed economic data also press down the euro. Even though China's GDP in the first quarter performed the best growth of 18.3%, last year's decline is the reason for this. Compared to October-December, the growth rate of gross domestic product decreased from 2.6% to 0.6%. HSBC estimates that China's economy grew 5.4% if low-base distortions are excluded, down from the pre-crisis 6%. However, I do not think that everything is bad with the Chinese economy. According to Bloomberg, production will peak soon, and demand will continue to grow further, supporting the economy’s sustainable growth.
According to the median gauge of Bloomberg’s experts, the ECB should slow down the emergency asset purchase program by July and, at the end of this year, it will signal the termination of the PEPP in March 2022. At the meeting on April 22, no changes in monetary policy are expected. In addition to the euro-area PMI improvement, this fact should support the euro.
Weekly EURUSD trading plan
I believe the situation of early April, when, after a strong US jobs report, the EURUSD pair immediately took a pause and then resumed its growth, is quite likely to repeat. If the price breaks out the resistance at 1.199, it should continue the rally towards 1.204 and 1.208.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-is-covering-the-tracks-forecast-as-of-16042021/?uid=285861726&cid=79634
Dynamics of hedge funds’ Treasury bond holdings and Treasury yield
When the world economy is about to rebound, the EURUSD should not fall in response to the US strong domestic data. However, the euro dropped on April 15. What’s the matter? What will happen next? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
Live and learn. The financial markets’ reaction to the release of US strong economic data was the same as to the US March jobs report. The S&P 500 hit a new all-time high for the 22nd time in 2021, and Treasury yields fell. However, the dollar has suddenly strengthened. Nonetheless, the greenback didn’t immediately weaken in early April too. It dropped on the next day. Will the recent history repeat itself?
The US economy is strong. Retail sales jumped 9.8% M-o-M in March, which was the best performance over the last 10 months; industrial production rose 2.7%, and the number of jobless claims fell to the lowest level since the pandemic started. There is no longer any doubt about the rapid growth of US GDP in the second quarter. The worst drop in 10-year Treasury bond yield since the beginning of November looks surprising. It could be explained by the Japanese buyers’ return to the US bond market; they were actively selling Treasuries at the end of the fiscal year in their country. Another reason is that hedge funds have offloaded more than $100 billion of the securities since the start of January.
The world’s most significant sell-off of US government bonds so far in 2021 has been in the financial center of the Cayman Islands, well known as a domicile for leveraged accounts. According to Treasury Department data, Investors there dumped $62 billion of US sovereign bonds in February, after selling $49 billion in January.
In fact, if debt market rates continue to decline despite the rapid growth of the US economy, this, on the one hand, will confirm the Fed's words about a temporary surge in inflation. On the other hand, it will increase the global risk appetite. Both factors are bearish for the USD index. Investors may need time to realize this fact and resume EURUSD purchases.
China’s mixed economic data also press down the euro. Even though China's GDP in the first quarter performed the best growth of 18.3%, last year's decline is the reason for this. Compared to October-December, the growth rate of gross domestic product decreased from 2.6% to 0.6%. HSBC estimates that China's economy grew 5.4% if low-base distortions are excluded, down from the pre-crisis 6%. However, I do not think that everything is bad with the Chinese economy. According to Bloomberg, production will peak soon, and demand will continue to grow further, supporting the economy’s sustainable growth.
According to the median gauge of Bloomberg’s experts, the ECB should slow down the emergency asset purchase program by July and, at the end of this year, it will signal the termination of the PEPP in March 2022. At the meeting on April 22, no changes in monetary policy are expected. In addition to the euro-area PMI improvement, this fact should support the euro.
Weekly EURUSD trading plan
I believe the situation of early April, when, after a strong US jobs report, the EURUSD pair immediately took a pause and then resumed its growth, is quite likely to repeat. If the price breaks out the resistance at 1.199, it should continue the rally towards 1.204 and 1.208.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-is-covering-the-tracks-forecast-as-of-16042021/?uid=285861726&cid=79634
Dynamics of hedge funds’ Treasury bond holdings and Treasury yield
LiteFinance
Euro will do the job by proxy. Forecast as of 15.04.2021
If everything is bad in Europe, and the US situation is much better, why the EURUSD is rising in price? If the financial markets feature the same response to the US strong retail sales data as they did after the US jobs report, the euro could well grow higher. Let us discuss the Forex outlook and make up a trading plan.
Fundamental euro forecast today
The idea to buy the euro amid the potential acceleration of vaccinations and the euro area's economic recovery due to US and Chinese imports looks good. However, the EU governments must make an effort to support the economic rebound. According to the IMF, the EU countries should increase government spending by another 3% of GDP to reduce the pandemic's economic fallout. If you want something to be done well, do it yourself.
The International Monetary Fund predicts that the euro-area economy will recover more slowly than its major trading partners due to vaccine rollout problems, extended lockdowns, and less significant fiscal stimulus than in the United States. This position seems to be shared by the leading economic institutions in Germany. Reuters source, familiar with the matter, claims they will cut their estimates of German GDP growth in 2021 from 4.7% to 3.7% due to more extended isolation than previously thought. The government focuses on the experts’ forecasts. In January, official Berlin expected economic growth of 3%.
If everything is so bad in Europe, but in the United States, on the contrary, everything is good, why is EURUSD growing? This is the nature of the market! Investors are used to buying the rumor. The worse the forecasts are, the more chances of exceeding them are. Conversely, high estimates of GDP growth may already be priced. In this regard, the release of US retail sales data could be the same story as the most recent US labor market report. Strong statistics pushed the S&P 500 up, pressing down Treasury yields and weakening the greenback.
According to Bloomberg experts, the U.S. retail sales probably surged by 5.8% M-o-M in March after a 3% decline in February thanks to faster hiring, the distribution of federal stimulus checks, a steady pace of Covid-19 vaccinations, and fewer restrictions on stores across the country. BofA Merrill Lynch expects an 11.5% gain.
Will the financial markets react in the same way as they did following the US jobs report? The answer to this question is crucial. A positive response will allow buying the EURUSD right away. Furthermore, it will provide further evidence that the euro area still counts on foreign support. And there are two sources of support – the USA and China. China’s GDP report is as important for the euro as the US retail sales data.
China's economy is expected to expand by a whopping 18.5% in the first quarter, the best growth in its 30-year record-keeping history. However, one should not be misled. The reason is the low calculation base of last year when the GDP sank by almost 7%. Compared to the fourth quarter, the economic growth rate is likely to slow down from 2.6% to 1.4%.
EURUSD trading plan today
Tasks need to be solved as they come. If the EURUSD bulls fail to consolidate above 1.2 amid strong US retail sales data, it will signal their weakness. In this case, the pair is likely to roll back to the consolidation range of 1.185-1.2. Conversely, if the euro breaks out the above-mentioned level, it should reach the targets at $1.204 and $1.208.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-will-do-the-job-by-proxy-forecast-as-of-15042021/?uid=285861726&cid=79634
Dynamics of US retail sales
If everything is bad in Europe, and the US situation is much better, why the EURUSD is rising in price? If the financial markets feature the same response to the US strong retail sales data as they did after the US jobs report, the euro could well grow higher. Let us discuss the Forex outlook and make up a trading plan.
Fundamental euro forecast today
The idea to buy the euro amid the potential acceleration of vaccinations and the euro area's economic recovery due to US and Chinese imports looks good. However, the EU governments must make an effort to support the economic rebound. According to the IMF, the EU countries should increase government spending by another 3% of GDP to reduce the pandemic's economic fallout. If you want something to be done well, do it yourself.
The International Monetary Fund predicts that the euro-area economy will recover more slowly than its major trading partners due to vaccine rollout problems, extended lockdowns, and less significant fiscal stimulus than in the United States. This position seems to be shared by the leading economic institutions in Germany. Reuters source, familiar with the matter, claims they will cut their estimates of German GDP growth in 2021 from 4.7% to 3.7% due to more extended isolation than previously thought. The government focuses on the experts’ forecasts. In January, official Berlin expected economic growth of 3%.
If everything is so bad in Europe, but in the United States, on the contrary, everything is good, why is EURUSD growing? This is the nature of the market! Investors are used to buying the rumor. The worse the forecasts are, the more chances of exceeding them are. Conversely, high estimates of GDP growth may already be priced. In this regard, the release of US retail sales data could be the same story as the most recent US labor market report. Strong statistics pushed the S&P 500 up, pressing down Treasury yields and weakening the greenback.
According to Bloomberg experts, the U.S. retail sales probably surged by 5.8% M-o-M in March after a 3% decline in February thanks to faster hiring, the distribution of federal stimulus checks, a steady pace of Covid-19 vaccinations, and fewer restrictions on stores across the country. BofA Merrill Lynch expects an 11.5% gain.
Will the financial markets react in the same way as they did following the US jobs report? The answer to this question is crucial. A positive response will allow buying the EURUSD right away. Furthermore, it will provide further evidence that the euro area still counts on foreign support. And there are two sources of support – the USA and China. China’s GDP report is as important for the euro as the US retail sales data.
China's economy is expected to expand by a whopping 18.5% in the first quarter, the best growth in its 30-year record-keeping history. However, one should not be misled. The reason is the low calculation base of last year when the GDP sank by almost 7%. Compared to the fourth quarter, the economic growth rate is likely to slow down from 2.6% to 1.4%.
EURUSD trading plan today
Tasks need to be solved as they come. If the EURUSD bulls fail to consolidate above 1.2 amid strong US retail sales data, it will signal their weakness. In this case, the pair is likely to roll back to the consolidation range of 1.185-1.2. Conversely, if the euro breaks out the above-mentioned level, it should reach the targets at $1.204 and $1.208.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-will-do-the-job-by-proxy-forecast-as-of-15042021/?uid=285861726&cid=79634
Dynamics of US retail sales
LiteFinance
Dollar believes the Fed. Forecast as of 14.04.2021
In March, the market believed that the US inflation surge would make the Fed take active steps. In April, investors have changed their viewpoint. The Fed will remain passive even if the СPI is up to 3.5%. Where will the euro go? Let us discuss the Forex outlook and make up a EURUSD trading plan.
Monthly US dollar fundamental forecast
The world is not as it is, but as we imagine it. The financial markets’ reaction to the release of US inflation data for March convinces that investors have finally believed the Fed's mantra of temporary inflation growth. Typically, a CPI boost encourages investors to sell the US Treasury bonds, leading to higher yields. This time, the Treasury yields fell, pressing down the US dollar as well.
It is difficult to spend money on car fuel if you stay at home all the time. The low base last year led to a sharp jump in petrol prices by 9.1%, which accounted for more than half of the 2.6% rise in consumer prices in March. The indicator performed the best growth for almost nine years. In the coming months, it should continue rising to 3% by June. Oxford Economics even believes that CPI will soar to 3.5%, but this will not trigger an inflationary spiral. Yes, the low 2020 base, significant deferred demand, and supply disruptions will surely drive consumer prices up, but the Fed believes the rise will be temporary. And the market trusts the central bank. Moreover, Wall Street Journal experts suggest the US inflation should slow down to 2.6% by December.
The Federal Reserve passed the resistance test given by the Treasuries sellers in March. The end of the rally in Treasury yields has deprived the US dollar of its main advantage, the expectations of earlier monetary policy tightening than the central bank says. If so, even despite the US economy’s strength, the EURUSD could resume the uptrend and go to the level of 1.25 already in 2021. The euro-area economy is supported not only by the USA with its potential 6.5% GDP growth but also by China, which outperformed the US last year in terms of trade in goods with the EU.
In this regard, it is not surprising that the more than 38% jump in China's imports in March, together with the US Treasury's intention not to label China as a currency manipulator, strengthened not only the yuan but also the euro.
Rely on others, but do not make a mistake yourself. Google's mobility data show an increase in hypermarket visits across Europe. And this is amid the stricter lockdowns. This fact, in addition to the PMI increase, the IFO German business climate improvement, and ZEW positive investor sentiment, as well as the vaccination acceleration in the euro area, encouraged the EURUSD bulls to go ahead.
Monthly EURUSD trading plan
As I wrote, the Forex market situation has radically changed in April compared to March. In March, investors bet on the earlier federal funds rate hike than the FOMC officials suggested. In April, the markets abandoned this idea. Besides, the euro-area economic performance improves, encouraging investors to buy the EURUSD. As expected, the breakout of the resistance at 1.193 lets us expect the rally continuation to 1.2, and next, to 1.204 and 1.208. It is relevant to buy the pair on the price fall.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-believes-the-fed-forecast-as-of-14042021/?uid=285861726&cid=79634
Dynamics of trade in goods with EU
In March, the market believed that the US inflation surge would make the Fed take active steps. In April, investors have changed their viewpoint. The Fed will remain passive even if the СPI is up to 3.5%. Where will the euro go? Let us discuss the Forex outlook and make up a EURUSD trading plan.
Monthly US dollar fundamental forecast
The world is not as it is, but as we imagine it. The financial markets’ reaction to the release of US inflation data for March convinces that investors have finally believed the Fed's mantra of temporary inflation growth. Typically, a CPI boost encourages investors to sell the US Treasury bonds, leading to higher yields. This time, the Treasury yields fell, pressing down the US dollar as well.
It is difficult to spend money on car fuel if you stay at home all the time. The low base last year led to a sharp jump in petrol prices by 9.1%, which accounted for more than half of the 2.6% rise in consumer prices in March. The indicator performed the best growth for almost nine years. In the coming months, it should continue rising to 3% by June. Oxford Economics even believes that CPI will soar to 3.5%, but this will not trigger an inflationary spiral. Yes, the low 2020 base, significant deferred demand, and supply disruptions will surely drive consumer prices up, but the Fed believes the rise will be temporary. And the market trusts the central bank. Moreover, Wall Street Journal experts suggest the US inflation should slow down to 2.6% by December.
The Federal Reserve passed the resistance test given by the Treasuries sellers in March. The end of the rally in Treasury yields has deprived the US dollar of its main advantage, the expectations of earlier monetary policy tightening than the central bank says. If so, even despite the US economy’s strength, the EURUSD could resume the uptrend and go to the level of 1.25 already in 2021. The euro-area economy is supported not only by the USA with its potential 6.5% GDP growth but also by China, which outperformed the US last year in terms of trade in goods with the EU.
In this regard, it is not surprising that the more than 38% jump in China's imports in March, together with the US Treasury's intention not to label China as a currency manipulator, strengthened not only the yuan but also the euro.
Rely on others, but do not make a mistake yourself. Google's mobility data show an increase in hypermarket visits across Europe. And this is amid the stricter lockdowns. This fact, in addition to the PMI increase, the IFO German business climate improvement, and ZEW positive investor sentiment, as well as the vaccination acceleration in the euro area, encouraged the EURUSD bulls to go ahead.
Monthly EURUSD trading plan
As I wrote, the Forex market situation has radically changed in April compared to March. In March, investors bet on the earlier federal funds rate hike than the FOMC officials suggested. In April, the markets abandoned this idea. Besides, the euro-area economic performance improves, encouraging investors to buy the EURUSD. As expected, the breakout of the resistance at 1.193 lets us expect the rally continuation to 1.2, and next, to 1.204 and 1.208. It is relevant to buy the pair on the price fall.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-believes-the-fed-forecast-as-of-14042021/?uid=285861726&cid=79634
Dynamics of trade in goods with EU
LiteFinance
Will euro lose the grounds? Forecast as of 13.04.2021
Weekly euro fundamental forecast
In 2020, the export-led euro area was going to find support from China, which had surprisingly escaped a large-scale pandemic. In 2021, Europe counted on the US economy, supported by massive fiscal stimulus. But what if there is a conflict between the two countries? The euro area could lose support from both of them.
As the events of 2018-2019 showed, a trade war between the world's largest economies is not the best time for the euro. In 2021, the conflict flares up over Taiwan. China regards Taiwan as a breakaway province which it has vowed to retake, by force if necessary. The United States intends to defend the independence of Taipei in every possible way. At the same time, Washington behaves rather strangely: it strengthens economic ties with Taiwan but threatens to label it as a currency manipulator, which leads to a weakening of the Taiwan dollar. Nonetheless, China, according to Bloomberg's source familiar with the matter, will avoid receiving a black mark from Janet Yellen, which will strengthen the yuan and support the EURUSD.
Geopolitical conflicts escalation usually leads to greenback strengthening as the demand for safe-haven assets increases. The demand for US Treasury bonds also grows.
In the first six months of this fiscal year, the US budget deficit reached $ 1.7 trillion, twice as much as in the same period a year earlier. The US desperately needs money, especially as Republicans oppose Joe Biden's plan to fund a new fiscal stimulus package by raising corporate taxes. Thus, it is beneficial for the USA to maintain a high degree of geopolitical tensions in Asia, the Middle East, and in relations with Russia, as foreign investors will be encouraged to buy Treasuries. The US Treasury department managed to profitably place 3, 10, and 30-year securities at auctions at the beginning of the week ending April 16.
Expectations of an increase in the bonds supply in the secondary market and concerns about the US inflation surge contributed to the Treasury yields rally resumption. Therefore, the stock indexes were pressed down, discouraging the EURUSD bulls. According to the research by the Federal Reserve Bank of New York, inflation expectations among consumers for the next year are 3.2%; in 3 years, the expected inflation should reach 3.1%, which is the highest level since March 2014 and does not fit with the Fed's opinion on the temporary CPI acceleration. About 45% of respondents believe that inflation will exceed 4%.
Rising commodity prices, supply chain disruptions, huge deferred demand, and high inflationary expectations are powerful drivers for CPI growth. Bloomberg experts suggest that the US inflation rate should increase from 1.7% to 2.4% in March, which seems to be just the beginning.
Weekly EURUSD trading plan
The Forex outlook depends on the dollar pairs' reaction to the release of the US inflation data. If the CPI is higher than the consensus forecast, the Treasury yields rally is likely to continue. This scenario suggests the EURUSD should go down below the supports at 1.187 and 1.185, which could send the pair to 1.18 and 1.176. Conversely, a weak reading of the US inflation will suggest that the euro could return to a level above $1.193.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/will-euro-lose-the-grounds-forecast-as-of-13042021/?uid=285861726&cid=79634
Dynamics of yuan and euro
Weekly euro fundamental forecast
In 2020, the export-led euro area was going to find support from China, which had surprisingly escaped a large-scale pandemic. In 2021, Europe counted on the US economy, supported by massive fiscal stimulus. But what if there is a conflict between the two countries? The euro area could lose support from both of them.
As the events of 2018-2019 showed, a trade war between the world's largest economies is not the best time for the euro. In 2021, the conflict flares up over Taiwan. China regards Taiwan as a breakaway province which it has vowed to retake, by force if necessary. The United States intends to defend the independence of Taipei in every possible way. At the same time, Washington behaves rather strangely: it strengthens economic ties with Taiwan but threatens to label it as a currency manipulator, which leads to a weakening of the Taiwan dollar. Nonetheless, China, according to Bloomberg's source familiar with the matter, will avoid receiving a black mark from Janet Yellen, which will strengthen the yuan and support the EURUSD.
Geopolitical conflicts escalation usually leads to greenback strengthening as the demand for safe-haven assets increases. The demand for US Treasury bonds also grows.
In the first six months of this fiscal year, the US budget deficit reached $ 1.7 trillion, twice as much as in the same period a year earlier. The US desperately needs money, especially as Republicans oppose Joe Biden's plan to fund a new fiscal stimulus package by raising corporate taxes. Thus, it is beneficial for the USA to maintain a high degree of geopolitical tensions in Asia, the Middle East, and in relations with Russia, as foreign investors will be encouraged to buy Treasuries. The US Treasury department managed to profitably place 3, 10, and 30-year securities at auctions at the beginning of the week ending April 16.
Expectations of an increase in the bonds supply in the secondary market and concerns about the US inflation surge contributed to the Treasury yields rally resumption. Therefore, the stock indexes were pressed down, discouraging the EURUSD bulls. According to the research by the Federal Reserve Bank of New York, inflation expectations among consumers for the next year are 3.2%; in 3 years, the expected inflation should reach 3.1%, which is the highest level since March 2014 and does not fit with the Fed's opinion on the temporary CPI acceleration. About 45% of respondents believe that inflation will exceed 4%.
Rising commodity prices, supply chain disruptions, huge deferred demand, and high inflationary expectations are powerful drivers for CPI growth. Bloomberg experts suggest that the US inflation rate should increase from 1.7% to 2.4% in March, which seems to be just the beginning.
Weekly EURUSD trading plan
The Forex outlook depends on the dollar pairs' reaction to the release of the US inflation data. If the CPI is higher than the consensus forecast, the Treasury yields rally is likely to continue. This scenario suggests the EURUSD should go down below the supports at 1.187 and 1.185, which could send the pair to 1.18 and 1.176. Conversely, a weak reading of the US inflation will suggest that the euro could return to a level above $1.193.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/will-euro-lose-the-grounds-forecast-as-of-13042021/?uid=285861726&cid=79634
Dynamics of yuan and euro
LiteFinance
Will geopolitics save yen? Forecast as of 12.04.2021
Weekly yen fundamental analysis
Under Donald Trump, America's main enemy was China. Under Joe Biden, it is going to be Russia. The White House calls Nord Stream 2 a bad deal, threatens the Kremlin with new sanctions, and is interested in escalating Russia and Ukraine's geopolitical conflict. At the same time, Washington is blacklisting Chinese super-computer companies and preparing a Strategic Competition Act for congressional consideration to counter China. Over the past few weeks, Beijing has increased the number of aircraft in Taiwan's airspace, and Israel has attacked the Iranian naval vessel Saviz. Therefore, geopolitical risks are mounting, which has historically been good news for the US dollar.
As a rule, this factor is realized by increasing demand for treasury bonds, which leads to a decrease in their yield. Nevertheless, in March, the rally in US debt market rates was the main driver of the greenback strengthening, so other safe-haven currencies such as the yen and the franc can benefit from the escalating geopolitical risks.
The USDJPY featured the worst drop since November in the first full week of April. Investors get a clear explanation of whether an increase in the S&P 500 or a decline in Treasury yields is a more powerful argument for the USDJPY bears. Even though the US stock index continues to update highs, the dollar price against the yen, ¥109-109.5, weakened due to falling debt rates. At the same time, the release of US data on consumer prices in March may return investor interest in Treasuries' sale, which will be a real blow to the yen. According to Bloomberg experts' forecasts, CPI will accelerate to 2.4%. Judging by the rise in producer prices to 4.2%, the actual data is likely to surpass estimates.
The USDJPY volatility could substantially surge in the week ending April 16. The pair will be influenced by rising geopolitical risks and fears of US inflation soaring to 3% or more over the next few months. The dynamics of the Japanese currency will continue to depend on foreign environment, while the idea to trade on the vaccination progress, popular in 2021, will hardly affect the yen prices. In terms of the vaccination rate, Japan is one of the outsiders among the G-7, but based on mortality, the country's situation does not look doom.
Weekly USDJPY trading plan
In my opinion, the yen's fate will continue to be in the hands of the US debt market. In the long term, due to the explosive growth of the US economy, the rally in Treasury yields is likely to resume, allowing the USDJPY bulls to recover the uptrend. Nevertheless, in the short-term, geopolitics and stabilization of the Treasury bond market are fraught with a continuation of a pullback or consolidation. I recommend buying on the breakout of the resistances at 109.8 and 110 with targets at 112 and 114.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/will-geopolitics-save-yen-forecast-as-of-12042021/?uid=285861726&cid=79634
Dynamics of the US dollar and the Uncertainty Index
Weekly yen fundamental analysis
Under Donald Trump, America's main enemy was China. Under Joe Biden, it is going to be Russia. The White House calls Nord Stream 2 a bad deal, threatens the Kremlin with new sanctions, and is interested in escalating Russia and Ukraine's geopolitical conflict. At the same time, Washington is blacklisting Chinese super-computer companies and preparing a Strategic Competition Act for congressional consideration to counter China. Over the past few weeks, Beijing has increased the number of aircraft in Taiwan's airspace, and Israel has attacked the Iranian naval vessel Saviz. Therefore, geopolitical risks are mounting, which has historically been good news for the US dollar.
As a rule, this factor is realized by increasing demand for treasury bonds, which leads to a decrease in their yield. Nevertheless, in March, the rally in US debt market rates was the main driver of the greenback strengthening, so other safe-haven currencies such as the yen and the franc can benefit from the escalating geopolitical risks.
The USDJPY featured the worst drop since November in the first full week of April. Investors get a clear explanation of whether an increase in the S&P 500 or a decline in Treasury yields is a more powerful argument for the USDJPY bears. Even though the US stock index continues to update highs, the dollar price against the yen, ¥109-109.5, weakened due to falling debt rates. At the same time, the release of US data on consumer prices in March may return investor interest in Treasuries' sale, which will be a real blow to the yen. According to Bloomberg experts' forecasts, CPI will accelerate to 2.4%. Judging by the rise in producer prices to 4.2%, the actual data is likely to surpass estimates.
The USDJPY volatility could substantially surge in the week ending April 16. The pair will be influenced by rising geopolitical risks and fears of US inflation soaring to 3% or more over the next few months. The dynamics of the Japanese currency will continue to depend on foreign environment, while the idea to trade on the vaccination progress, popular in 2021, will hardly affect the yen prices. In terms of the vaccination rate, Japan is one of the outsiders among the G-7, but based on mortality, the country's situation does not look doom.
Weekly USDJPY trading plan
In my opinion, the yen's fate will continue to be in the hands of the US debt market. In the long term, due to the explosive growth of the US economy, the rally in Treasury yields is likely to resume, allowing the USDJPY bulls to recover the uptrend. Nevertheless, in the short-term, geopolitics and stabilization of the Treasury bond market are fraught with a continuation of a pullback or consolidation. I recommend buying on the breakout of the resistances at 109.8 and 110 with targets at 112 and 114.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/will-geopolitics-save-yen-forecast-as-of-12042021/?uid=285861726&cid=79634
Dynamics of the US dollar and the Uncertainty Index
LiteFinance
Dollar is to make concessions. Forecast as of 08.04.2021
A compromise between the White House and the representatives of large corporations on the new tax payments could result in the continuation of the Treasury yields rally. If so, the euro bears could go ahead. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Weekly US dollar fundamental forecast
The widening foreign trade deficit amid the increase in imports usually means the economy’s overheating. However, the Fed and the US administration seem to be unwilling to manage the situation. In February, the US trade deficit reached a record high of $71.1 billion. Nevertheless, Joe Biden continues to put forward the idea of a new $ 2.3 trillion stimulus, and the Fed believes its current interest rates are at the right place. Such a position of the authorities calms down financial markets, allowing the S&P 500 to hit the new all-time highs. However, it may not support the EURUSD bulls.
The widening of the US twin deficit was one of the main arguments of the bearish USD forecasts for 2021. Despite the greenback's successful start, some banks and investment companies still hold a bearish outlook for the dollar. For example, Deutsche Bank still believes that the euro will rise to $1.25 by June and to $1.3 by the end of December. Despite the short-term bearish sentiment, Goldman Sachs expects EURUSD to rally to 1.21 and 1.28 over the next 3 and 12 months. Even Citi, which surprised Forex analysts by its forecast suggesting the greenback should weaken by 20%, doesn’t abandon the former trading ideas, claiming that the USD long-term outlook remains bearish.
On the other hand, BofA Merrill Lynch bets on the growth gap between the USA and the euro area and expects the euro-dollar to go down to 1.15 by December. Commonwealth Bank of Australia suggests that the EURUSD should soon reach level 1.17 as the number of new coronavirus cases is growing in Europe, and the EU is lagging behind the USA in terms of vaccination rate.
Some analysts say the further euro-dollar trend depends on the Fed’s reaction to US inflation growth. Based on the minutes of the FOMC March meeting, the US central bank believes that the risk of high inflation is almost equal to the risk of low inflation. Several Committee members noted that supply disruptions could lead to higher consumer prices than expected. Others said that the factors that had hampered PCE in the past would soon create new pressures on inflation.
I must say the S&P 500 would hardly have broken through its all-time high, and the EURUSD would not have moved above 1.19 if it had not been for the US bond market stabilization.
Yes, the US bond yields have slowed down, but the new growth driver will be the softening of Joe Biden’s tax plan. Currently, the White House offers a tax hike from 21% to 28%. However, according to Reuters polls, most corporations and government representatives believe there will be reached a compromise of 25%.
Weekly EURUSD trading plan
The EURUSD bulls failed to consolidate the price above 1.19, which means their weakness. The euro still looks vulnerable. If the Treasury yields resume the rally, the euro will move to the lower border of the consolidation range of $1.17- $1.195. Sales on the price rise have been profitable so far.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-is-to-make-concessions-forecast-as-of-08042021/?uid=285861726&cid=79634
Dynamics of US trade balance
A compromise between the White House and the representatives of large corporations on the new tax payments could result in the continuation of the Treasury yields rally. If so, the euro bears could go ahead. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Weekly US dollar fundamental forecast
The widening foreign trade deficit amid the increase in imports usually means the economy’s overheating. However, the Fed and the US administration seem to be unwilling to manage the situation. In February, the US trade deficit reached a record high of $71.1 billion. Nevertheless, Joe Biden continues to put forward the idea of a new $ 2.3 trillion stimulus, and the Fed believes its current interest rates are at the right place. Such a position of the authorities calms down financial markets, allowing the S&P 500 to hit the new all-time highs. However, it may not support the EURUSD bulls.
The widening of the US twin deficit was one of the main arguments of the bearish USD forecasts for 2021. Despite the greenback's successful start, some banks and investment companies still hold a bearish outlook for the dollar. For example, Deutsche Bank still believes that the euro will rise to $1.25 by June and to $1.3 by the end of December. Despite the short-term bearish sentiment, Goldman Sachs expects EURUSD to rally to 1.21 and 1.28 over the next 3 and 12 months. Even Citi, which surprised Forex analysts by its forecast suggesting the greenback should weaken by 20%, doesn’t abandon the former trading ideas, claiming that the USD long-term outlook remains bearish.
On the other hand, BofA Merrill Lynch bets on the growth gap between the USA and the euro area and expects the euro-dollar to go down to 1.15 by December. Commonwealth Bank of Australia suggests that the EURUSD should soon reach level 1.17 as the number of new coronavirus cases is growing in Europe, and the EU is lagging behind the USA in terms of vaccination rate.
Some analysts say the further euro-dollar trend depends on the Fed’s reaction to US inflation growth. Based on the minutes of the FOMC March meeting, the US central bank believes that the risk of high inflation is almost equal to the risk of low inflation. Several Committee members noted that supply disruptions could lead to higher consumer prices than expected. Others said that the factors that had hampered PCE in the past would soon create new pressures on inflation.
I must say the S&P 500 would hardly have broken through its all-time high, and the EURUSD would not have moved above 1.19 if it had not been for the US bond market stabilization.
Yes, the US bond yields have slowed down, but the new growth driver will be the softening of Joe Biden’s tax plan. Currently, the White House offers a tax hike from 21% to 28%. However, according to Reuters polls, most corporations and government representatives believe there will be reached a compromise of 25%.
Weekly EURUSD trading plan
The EURUSD bulls failed to consolidate the price above 1.19, which means their weakness. The euro still looks vulnerable. If the Treasury yields resume the rally, the euro will move to the lower border of the consolidation range of $1.17- $1.195. Sales on the price rise have been profitable so far.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-is-to-make-concessions-forecast-as-of-08042021/?uid=285861726&cid=79634
Dynamics of US trade balance
LiteFinance
Euro is about to rebound. Forecast as of 07.04.2021
The market sometimes goes too far, and the US dollar is no exception. In early spring, the dollar was growing too fast, and investors are now revising the situation. The EURUSD bulls are not as weak as it was thought before. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Monthly euro fundamental forecast
The future consists of what we already know and what we have yet to learn. Hardly anyone was surprised by the increased US GDP forecasts for 2021 from 5.1% to 6.4%. However, the IMF upgraded the growth projections for China, paying for the economic stimulus, and the locked-down euro-area, which has become a pleasant surprise for the EURUSD bulls. They took advantage of a halt in the Treasury yields rally and pushed the pair price above the middle of figure 18.
Things are not as bad as they seemed before. According to the IMF, the recent recession won’t leave as severe consequences as the previous one due to the massive incentives. By 2024, the OECD countries will produce only 1% less than predicted before the pandemic. For comparison, after the crisis of 2008-2009, the gap between the expected and actual growth was 10%. The United States, due to the large-scale monetary and fiscal stimulus, will manage the recession fallout with little or no loss and help other countries. However, over the next five years, the global GDP driver will be China, not the USA.
Both factors, including the US assistance to the export-led economies and China’s leadership, are favorable for the euro. Furthermore, there are unconventional views on fiscal policy, which will support the EURUSD bulls. According to UBS, Joe Biden's $1.9 trillion aid package is not more significant for the United States than the €750 billion Recovery Fund for Europe. In fact, most of the EU stimulus will come in 2021, while in the USA, the new packages will simply replace the previous ones. The bank estimates the impact of the program adopted by Congress at +0.5 % to US GDP in 2021, while European stimulus will add 1% to the euro-area GDP in the same period.
By and large, the EU efforts to create the European common bond market, China's financial openness and the growing US twin deficit are bearish factors for the USD index. The greenback must have been growing too fast in March, and investors realize this fact in April. A case in point is the decline in the Treasury yields and the lower chance of the federal funds rate hike in response to the robust US PMI and employment data.
Currently, the derivatives market is betting on a Fed rate hike in late 2022, and a further 75-bps increase by early 2024. Nevertheless, the Fed members express the willingness to allow the US economy to overheat. The Fed does not try to clamp down on the growth of US bond yields, as it considers it to be fundamentally justified. As long as financial conditions, according to Oxford Economics, are close to 20-year lows, the central bank won’t take active steps.
Monthly EURUSD trading plan
I believe there appear reasons for the EURUSD rally start which will resume the euro uptrend. This fact suggests the trading strategy of buying the euro-dollar on the corrections. On the other hand, the euro-area economic situation will hardly improve soon. Therefore, the euro tendency to consolidate in the range of $1.17-$1.195 makes it profitable to sell the EURUSD on the price growth to the upper border of the range.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-is-about-to-rebound-forecast-as-of-07042021/?uid=285861726&cid=58534
IMF projections
The market sometimes goes too far, and the US dollar is no exception. In early spring, the dollar was growing too fast, and investors are now revising the situation. The EURUSD bulls are not as weak as it was thought before. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Monthly euro fundamental forecast
The future consists of what we already know and what we have yet to learn. Hardly anyone was surprised by the increased US GDP forecasts for 2021 from 5.1% to 6.4%. However, the IMF upgraded the growth projections for China, paying for the economic stimulus, and the locked-down euro-area, which has become a pleasant surprise for the EURUSD bulls. They took advantage of a halt in the Treasury yields rally and pushed the pair price above the middle of figure 18.
Things are not as bad as they seemed before. According to the IMF, the recent recession won’t leave as severe consequences as the previous one due to the massive incentives. By 2024, the OECD countries will produce only 1% less than predicted before the pandemic. For comparison, after the crisis of 2008-2009, the gap between the expected and actual growth was 10%. The United States, due to the large-scale monetary and fiscal stimulus, will manage the recession fallout with little or no loss and help other countries. However, over the next five years, the global GDP driver will be China, not the USA.
Both factors, including the US assistance to the export-led economies and China’s leadership, are favorable for the euro. Furthermore, there are unconventional views on fiscal policy, which will support the EURUSD bulls. According to UBS, Joe Biden's $1.9 trillion aid package is not more significant for the United States than the €750 billion Recovery Fund for Europe. In fact, most of the EU stimulus will come in 2021, while in the USA, the new packages will simply replace the previous ones. The bank estimates the impact of the program adopted by Congress at +0.5 % to US GDP in 2021, while European stimulus will add 1% to the euro-area GDP in the same period.
By and large, the EU efforts to create the European common bond market, China's financial openness and the growing US twin deficit are bearish factors for the USD index. The greenback must have been growing too fast in March, and investors realize this fact in April. A case in point is the decline in the Treasury yields and the lower chance of the federal funds rate hike in response to the robust US PMI and employment data.
Currently, the derivatives market is betting on a Fed rate hike in late 2022, and a further 75-bps increase by early 2024. Nevertheless, the Fed members express the willingness to allow the US economy to overheat. The Fed does not try to clamp down on the growth of US bond yields, as it considers it to be fundamentally justified. As long as financial conditions, according to Oxford Economics, are close to 20-year lows, the central bank won’t take active steps.
Monthly EURUSD trading plan
I believe there appear reasons for the EURUSD rally start which will resume the euro uptrend. This fact suggests the trading strategy of buying the euro-dollar on the corrections. On the other hand, the euro-area economic situation will hardly improve soon. Therefore, the euro tendency to consolidate in the range of $1.17-$1.195 makes it profitable to sell the EURUSD on the price growth to the upper border of the range.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-is-about-to-rebound-forecast-as-of-07042021/?uid=285861726&cid=58534
IMF projections