LiteFinance
- Forex Broker konum: LiteFinance Global LLC
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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
Euro believes ECB's words. Forecast as of 02.03.2021
When the market doubts the Fed’s willingness to remain passive for a long time and believes the ECB should hold back the euro-area bond yield growth, the euro can’t but fall. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Weekly euro fundamental forecast
Do not believe your eyes, believe your ears. Perhaps the European Central Bank chose not the best time to announce its intentions to counter the euro-area bond yield growth, but investors believed the words. Investors ignored a slowdown in the ECB assets purchases volume within the quantitative easing program and started to sell the EURUSD amid the strongest verbal intervention by the ECB officials.
Bank of France (BoF) Governor Francois Villeroy de Galhau said the European Central Bank “can and must react against” any unwarranted rise in bond yields that threaten to undermine the euro-area economy. The ECB’s concern is natural, as the euro-area yields are rising, unlike the trade-weighted euro, which was targeted by verbal interventions in January-February.
ECB says it is willing to accelerate asset purchases but reduces the purchase pace, in fact, which does not seem to be the right solution. In the last week of February, the ECB settled €12 billion ($14.5 billion) of net purchases under its emergency program, compared to €17.2 billion the week before. However, the total figures have been distorted by the enormous volumes of redemptions. The French government alone redeemed a 3-year bond last week, which had €31 billion outstanding.
When the market believes the ECB’s words and continues to test the Fed’s persistence, the EURUSD can’t but fall. Investors prefer to face facts. While the growth in Treasury bond yields due to the rapid recovery of the US economy and expectations of fiscal stimulus is logical, the increase in the euro-area debt market rates amid a double-dip recession is not a norm. And the ECB is willing to interfere in the bond market to overcome the situation.
According to Bloomberg estimates, if the US Congress adopts the $1.9 trillion aid package offered by Joe Biden, US GDP will return to pre-pandemic levels by mid-2021 and will expand by 7.4% by the end of this year. The euro area is lagging far behind. Divergence in economic growth continues to support the EURUSD bears. However, Forex likes wise and forward-looking traders.
Due to massive fiscal stimulus, the US has accumulated significant deferred demand, which a record savings level confirms. The US manufacturing sector will not grow fast enough to satisfy the demand in 2021. US domestic market will require imports, creating a strong tailwind for European exports. That is why I believe that the EURUSD uptrend should resume. However, the scenario, implying the US should support the euro-area growth, should take its time to work out. In the meanwhile, the euro could continue falling.
Weekly EURUSD trading plan
The euro bulls face a hard challenge, and they should not allow the price to break out the supports at 1.2 and 1.1985. If the buyers hold up the supports, the EURUSD will continue consolidation in the range of 1.2-1.22. If the price breaks out the support levels downside, the euro will continue sliding down towards $1.194 and 1.188. Take your trading decisions according to the closing prices of the bars during the support tests.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-believes-ecbs-words-forecast-as-of-02032021/?uid=285861726&cid=79634
Dynamics of swap rates and euro
When the market doubts the Fed’s willingness to remain passive for a long time and believes the ECB should hold back the euro-area bond yield growth, the euro can’t but fall. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Weekly euro fundamental forecast
Do not believe your eyes, believe your ears. Perhaps the European Central Bank chose not the best time to announce its intentions to counter the euro-area bond yield growth, but investors believed the words. Investors ignored a slowdown in the ECB assets purchases volume within the quantitative easing program and started to sell the EURUSD amid the strongest verbal intervention by the ECB officials.
Bank of France (BoF) Governor Francois Villeroy de Galhau said the European Central Bank “can and must react against” any unwarranted rise in bond yields that threaten to undermine the euro-area economy. The ECB’s concern is natural, as the euro-area yields are rising, unlike the trade-weighted euro, which was targeted by verbal interventions in January-February.
ECB says it is willing to accelerate asset purchases but reduces the purchase pace, in fact, which does not seem to be the right solution. In the last week of February, the ECB settled €12 billion ($14.5 billion) of net purchases under its emergency program, compared to €17.2 billion the week before. However, the total figures have been distorted by the enormous volumes of redemptions. The French government alone redeemed a 3-year bond last week, which had €31 billion outstanding.
When the market believes the ECB’s words and continues to test the Fed’s persistence, the EURUSD can’t but fall. Investors prefer to face facts. While the growth in Treasury bond yields due to the rapid recovery of the US economy and expectations of fiscal stimulus is logical, the increase in the euro-area debt market rates amid a double-dip recession is not a norm. And the ECB is willing to interfere in the bond market to overcome the situation.
According to Bloomberg estimates, if the US Congress adopts the $1.9 trillion aid package offered by Joe Biden, US GDP will return to pre-pandemic levels by mid-2021 and will expand by 7.4% by the end of this year. The euro area is lagging far behind. Divergence in economic growth continues to support the EURUSD bears. However, Forex likes wise and forward-looking traders.
Due to massive fiscal stimulus, the US has accumulated significant deferred demand, which a record savings level confirms. The US manufacturing sector will not grow fast enough to satisfy the demand in 2021. US domestic market will require imports, creating a strong tailwind for European exports. That is why I believe that the EURUSD uptrend should resume. However, the scenario, implying the US should support the euro-area growth, should take its time to work out. In the meanwhile, the euro could continue falling.
Weekly EURUSD trading plan
The euro bulls face a hard challenge, and they should not allow the price to break out the supports at 1.2 and 1.1985. If the buyers hold up the supports, the EURUSD will continue consolidation in the range of 1.2-1.22. If the price breaks out the support levels downside, the euro will continue sliding down towards $1.194 and 1.188. Take your trading decisions according to the closing prices of the bars during the support tests.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-believes-ecbs-words-forecast-as-of-02032021/?uid=285861726&cid=79634
Dynamics of swap rates and euro
LiteFinance
Dollar gives little to pay the debts. Forecast as of 01.03.2021
Weekly US dollar fundamental forecast
When the US dollar is following the yields on the US government bonds, it is strengthening against the basket of major currencies amid the sale of $21 trillion in the Treasury market, the most significant sell-off since November. According to Jefferies International, investors faced the largest debt deficit at the end of February since the taper tantrum in 2013. The need to balance portfolios at the end of the month stabilized the market. How long will the balance continue?
At the end of 2020, Bloomberg’s experts expected the US 10-year Treasury yield to grow from 1% to 1.5% amid the US economy's recovery, but few could have imagined that everything would happen so quickly. When debt rates rise, in theory, stockholders should not worry. Rapid GDP growth tends to lead to higher corporate profits, which should support the S&P 500. It seems that the rally in Treasury yields is not only due to the belief in a rapid recovery of the US economy, as the FOMC officials claim. And the surge in bond market volatility suggests that it is too early to give up on bond sales.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-gives-little-to-pay-the-debts-forecast-as-of-01032021/?uid=285861726&cid=79634
Dynamics of US bond market volatility
Weekly US dollar fundamental forecast
When the US dollar is following the yields on the US government bonds, it is strengthening against the basket of major currencies amid the sale of $21 trillion in the Treasury market, the most significant sell-off since November. According to Jefferies International, investors faced the largest debt deficit at the end of February since the taper tantrum in 2013. The need to balance portfolios at the end of the month stabilized the market. How long will the balance continue?
At the end of 2020, Bloomberg’s experts expected the US 10-year Treasury yield to grow from 1% to 1.5% amid the US economy's recovery, but few could have imagined that everything would happen so quickly. When debt rates rise, in theory, stockholders should not worry. Rapid GDP growth tends to lead to higher corporate profits, which should support the S&P 500. It seems that the rally in Treasury yields is not only due to the belief in a rapid recovery of the US economy, as the FOMC officials claim. And the surge in bond market volatility suggests that it is too early to give up on bond sales.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-gives-little-to-pay-the-debts-forecast-as-of-01032021/?uid=285861726&cid=79634
Dynamics of US bond market volatility
LiteFinance
Dollar tested Fed. Forecast as of 26.02.2021
Traders using fundamental analysis should have been satisfied. Strong euro-area domestic data resulted in the euro growth; strong US economic data supported the dollar. However, the market drivers are far more complex. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Weekly US dollar fundamental forecast
A basic rule to trade in the financial markets suggests investors should not go against the Fed. But sometimes people want to play against the rules, especially since it can yield a significant profit. This is what George Soros did in the 1990s, betting against the Bank of England and making his billion dollars on it. History knows many other examples. Therefore, the best daily growth in Treasury yields is not surprising; the market is likely to test the Fed's strength.
The Fed presidents agreed with Jerome Powell’s patience in making any adjustments to monetary policy. Atlanta’s Fed president, Raphael Bostic, is not concerned about a rise in yields, suggesting the Fed should not respond to it. Some other Fed leaders, New York’s John Williams and Kansas City’s Esther George, believe that the Treasury yield surge likely reflects growing optimism in the strength of the recovery. The US bond yields accelerated after jobless claims slumped and durable goods orders rose at the fastest pace since summer.
The Treasuries sell-offs press down the US stock market. It's one thing to buy equity securities when rates are low and another thing when the rates are sharply increasing. The stocks (especially tech stocks) look overvalued according to the fundamental gauge, and investors look for alternatives. The tech-heavy Nasdaq Composite index dropped by 3%, which signals a decline in the global risk appetite. That is why the US dollar strengthened.
Thus, investors seem to be testing the Fed's persistance, carefully observing how Jerome Powell will behave under pressure. Usually, a rapid rally in Treasury yields indicates a rapid rise in inflation and forces the central bank to normalize monetary policy. I would suggest that the Fed will withstand the pressure. For the first time since 2008, there has appeared a signal in the bond market known as an inversion of the break-even curve. The difference between the yields on ordinary Treasuries and the yields on inflation-protected Treasuries (TIPS) is more significant for the short-term papers than for the long-term ones. It signals that the inflation rise will be temporary. That is the position the Fed sticks to.
Besides, there are more growth drivers for the euro, both global and domestic. The euro-area economic confidence index has been up to almost an annual high. Furthermore, the international trader is recovering faster than after the previous crisis. Therefore, I suggest it is still relevant to buy the EURUSD.
Weekly EURUSD trading plan
The EURUSD bulls failed to consolidate above the upper border of the consolidation range of 1.2-1.22, which signals their weakness and increases the chance of further correction down if the price breaks out the support at 1.214. Nonetheless, if you are going to enter short-term sell trades, be careful, set short targets, and be prepared to exit sales at any moment.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-tested-fed-forecast-as-of-26022021/?uid=285861726&cid=79634
Dynamics of US government bond yields
Traders using fundamental analysis should have been satisfied. Strong euro-area domestic data resulted in the euro growth; strong US economic data supported the dollar. However, the market drivers are far more complex. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Weekly US dollar fundamental forecast
A basic rule to trade in the financial markets suggests investors should not go against the Fed. But sometimes people want to play against the rules, especially since it can yield a significant profit. This is what George Soros did in the 1990s, betting against the Bank of England and making his billion dollars on it. History knows many other examples. Therefore, the best daily growth in Treasury yields is not surprising; the market is likely to test the Fed's strength.
The Fed presidents agreed with Jerome Powell’s patience in making any adjustments to monetary policy. Atlanta’s Fed president, Raphael Bostic, is not concerned about a rise in yields, suggesting the Fed should not respond to it. Some other Fed leaders, New York’s John Williams and Kansas City’s Esther George, believe that the Treasury yield surge likely reflects growing optimism in the strength of the recovery. The US bond yields accelerated after jobless claims slumped and durable goods orders rose at the fastest pace since summer.
The Treasuries sell-offs press down the US stock market. It's one thing to buy equity securities when rates are low and another thing when the rates are sharply increasing. The stocks (especially tech stocks) look overvalued according to the fundamental gauge, and investors look for alternatives. The tech-heavy Nasdaq Composite index dropped by 3%, which signals a decline in the global risk appetite. That is why the US dollar strengthened.
Thus, investors seem to be testing the Fed's persistance, carefully observing how Jerome Powell will behave under pressure. Usually, a rapid rally in Treasury yields indicates a rapid rise in inflation and forces the central bank to normalize monetary policy. I would suggest that the Fed will withstand the pressure. For the first time since 2008, there has appeared a signal in the bond market known as an inversion of the break-even curve. The difference between the yields on ordinary Treasuries and the yields on inflation-protected Treasuries (TIPS) is more significant for the short-term papers than for the long-term ones. It signals that the inflation rise will be temporary. That is the position the Fed sticks to.
Besides, there are more growth drivers for the euro, both global and domestic. The euro-area economic confidence index has been up to almost an annual high. Furthermore, the international trader is recovering faster than after the previous crisis. Therefore, I suggest it is still relevant to buy the EURUSD.
Weekly EURUSD trading plan
The EURUSD bulls failed to consolidate above the upper border of the consolidation range of 1.2-1.22, which signals their weakness and increases the chance of further correction down if the price breaks out the support at 1.214. Nonetheless, if you are going to enter short-term sell trades, be careful, set short targets, and be prepared to exit sales at any moment.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-tested-fed-forecast-as-of-26022021/?uid=285861726&cid=79634
Dynamics of US government bond yields
LiteFinance
Dollar: blind, deaf and mute. Forecast as of 25.02.2021
The Fed’s unwillingness to respond to the Treasury yield growth and the US stock indexes’ rally eliminates the sense of risk. Where will the EURUSD go? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
The expectations of economic changes influence investors’ decisions today, thereby affecting the future. The expectations of inflation growth encourage consumers to buy, contributing to the GDP growth. These factors influence the US stock indexes, which have hit new all-time highs 32 times since early 2021, and the bond market. The US bond market featured the worst start since 2015, and the Treasury yield is rallying up. However, the Fed ignores the market signals.
Earlier, the Bank of Japan was considered the leading innovator in monetary policy, having introduced QE, negative rates, and a yield curve control. Currently, the Fed introduces the main innovations. The shift to average inflation targeting and ignoring financial markets’ signals confuse global central banks. Many of them are not ready to follow this path. The ECB emphasizes that it is closely monitoring European bond market rates. The RBNZ is willing to boost the monetary stimulus despite the economic recovery. The Bank of Korea warned it'd intervene in the market if bond yields continue rising. The RBA already interferes with record asset purchases since QE kicked off in March 2020.
The problem is that trying to go against the global trend alone is doomed to failure. The Reserve Bank of Australia's interventions did not stop Australia’s bond sellers. They bet on risk and reflation. Moreover, by its statement that it intends to make decisions on adjusting monetary policy based on actual, not expected data, the Fed only adds fuel to the fire. This statement by Jerome Powell on the second day of his speeches before Congress has pushed up the S&P 500 and EURUSD.
Market signals inflation should rise, but the US central bank doesn’t believe. In late 2019-early 2020, the Fed didn’t believe that the yield curve signals would result in a recession, but pandemic affected the economy. Jerome Powell pretends he does not understand how consumer prices can rise over a long time if they have not done so for the past 25 years. Powell says inflation is a long process that repeats year after year, not a single spike in prices. However, I do not think it is right to think that inflation cannot grow because it didn’t so before. There was no recession for a long time either, and it was considered unlikely at the beginning of last year.
Weekly EURUSD trading plan
Therefore, the market signals the US economy is overheating. Still, the Fed continues to ignore this, considering it is too early to take away the punch bowl just as the party gets going. This is a perfect environment to eliminate investors’ sense of risk and press down safe-havens, including the US dollar. The EURUSD bulls failed to break out the resistance at 1.218 at the first try, but the second try can well be successful. If so, the euro-dollar could reach the upside targets at 1.221 and 1.225.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-blind-deaf-and-mute-forecast-as-of-25022021/?uid=285861726&cid=79634
The Fed’s unwillingness to respond to the Treasury yield growth and the US stock indexes’ rally eliminates the sense of risk. Where will the EURUSD go? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
The expectations of economic changes influence investors’ decisions today, thereby affecting the future. The expectations of inflation growth encourage consumers to buy, contributing to the GDP growth. These factors influence the US stock indexes, which have hit new all-time highs 32 times since early 2021, and the bond market. The US bond market featured the worst start since 2015, and the Treasury yield is rallying up. However, the Fed ignores the market signals.
Earlier, the Bank of Japan was considered the leading innovator in monetary policy, having introduced QE, negative rates, and a yield curve control. Currently, the Fed introduces the main innovations. The shift to average inflation targeting and ignoring financial markets’ signals confuse global central banks. Many of them are not ready to follow this path. The ECB emphasizes that it is closely monitoring European bond market rates. The RBNZ is willing to boost the monetary stimulus despite the economic recovery. The Bank of Korea warned it'd intervene in the market if bond yields continue rising. The RBA already interferes with record asset purchases since QE kicked off in March 2020.
The problem is that trying to go against the global trend alone is doomed to failure. The Reserve Bank of Australia's interventions did not stop Australia’s bond sellers. They bet on risk and reflation. Moreover, by its statement that it intends to make decisions on adjusting monetary policy based on actual, not expected data, the Fed only adds fuel to the fire. This statement by Jerome Powell on the second day of his speeches before Congress has pushed up the S&P 500 and EURUSD.
Market signals inflation should rise, but the US central bank doesn’t believe. In late 2019-early 2020, the Fed didn’t believe that the yield curve signals would result in a recession, but pandemic affected the economy. Jerome Powell pretends he does not understand how consumer prices can rise over a long time if they have not done so for the past 25 years. Powell says inflation is a long process that repeats year after year, not a single spike in prices. However, I do not think it is right to think that inflation cannot grow because it didn’t so before. There was no recession for a long time either, and it was considered unlikely at the beginning of last year.
Weekly EURUSD trading plan
Therefore, the market signals the US economy is overheating. Still, the Fed continues to ignore this, considering it is too early to take away the punch bowl just as the party gets going. This is a perfect environment to eliminate investors’ sense of risk and press down safe-havens, including the US dollar. The EURUSD bulls failed to break out the resistance at 1.218 at the first try, but the second try can well be successful. If so, the euro-dollar could reach the upside targets at 1.221 and 1.225.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-blind-deaf-and-mute-forecast-as-of-25022021/?uid=285861726&cid=79634
LiteFinance
Dollar has to unlearn. Forecast as of 24.02.2021
The Fed is willing to be patient and ignore a surge in the US inflation. If so, the EURUSD trend should not soon reverse. Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
If anyone worried that the Fed would be frightened by the rise in inflation expectations and would signal to taper the QE, Jerome Powell's speech to Congress eliminated any worries. The US economy is far from the Fed’s targets for employment and inflation, and it will likely take some time to make significant progress in this direction. Therefore, the Federal Reserve won’t change the ultra-low federal funds rate or the asset purchases at a monthly pace of $120 billion. If so, the dollar should weaken.
In theory, the huge fiscal and monetary incentives should result in the growth of the money supply and inflation. According to Jerome Powell, economists need to unlearn what they studied at the universities a long time ago when M2 and monetary aggregates seemed to relate to economic growth and inflation. In recent decades, there has been a tendency for a significant slowdown in consumer price growth, and the Fed Chair does not understand how a surge in fiscal and monetary support that does not last for a long time can change this trend. Powell does not believe US inflation will reach alarming levels or will continue to rise.
Such a tone means the Fed is willing to be patient. The Central Bank is ready to allow the economy to overheat, just not to repeat the past mistakes when it ended QE and hiked the interest rates too early. If so, the US dollar will be under pressure, which gives hope for the EURUSD uptrend recovery. After all, the real rates in Europe are growing approximately as fast as in the United States, which makes the euro-area assets more promising, European stocks are undervalued compared to US peers, and the share of the euro in the central banks’ FX reserves must be increasing.
The greenback doesn’t strengthen although the vaccination campaign is progressing in the USA (65 million Americans were inoculated, which is 20% of the population), the reports on retail sales and PMI are positive. Investors understand that the US GDP rebound is good for the entire world economy, including the export-led euro area. When the EU countries start lifting lockdowns, the euro-area GDP should start growing rapidly, as it did last year, pushing the EURUSD up towards 1.25.
I do not think the euro bears can count on the S&P 500 correction, followed by a decline in the global risk appetite. Joe Biden's $1.9 billion is just the beginning. The new US administration intends to increase the fiscal stimulus to $3 trillion or $4 trillion, equivalent to 14-19% of GDP. Moreover, investments in infrastructure will be a priority in the second package.
Weekly EURUSD trading plan
Therefore, even if the EURUSD continues consolidation in the range of 1.2-1.22, as I suggested in one of the earlier articles, it will be more likely to break the trading channel upside than downside. It is still relevant to buy out the euro-dollar on the price fall.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-has-to-unlearn-forecast-as-of-24022021/?uid=285861726&cid=79634
Dynamics of real swap rates
The Fed is willing to be patient and ignore a surge in the US inflation. If so, the EURUSD trend should not soon reverse. Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
If anyone worried that the Fed would be frightened by the rise in inflation expectations and would signal to taper the QE, Jerome Powell's speech to Congress eliminated any worries. The US economy is far from the Fed’s targets for employment and inflation, and it will likely take some time to make significant progress in this direction. Therefore, the Federal Reserve won’t change the ultra-low federal funds rate or the asset purchases at a monthly pace of $120 billion. If so, the dollar should weaken.
In theory, the huge fiscal and monetary incentives should result in the growth of the money supply and inflation. According to Jerome Powell, economists need to unlearn what they studied at the universities a long time ago when M2 and monetary aggregates seemed to relate to economic growth and inflation. In recent decades, there has been a tendency for a significant slowdown in consumer price growth, and the Fed Chair does not understand how a surge in fiscal and monetary support that does not last for a long time can change this trend. Powell does not believe US inflation will reach alarming levels or will continue to rise.
Such a tone means the Fed is willing to be patient. The Central Bank is ready to allow the economy to overheat, just not to repeat the past mistakes when it ended QE and hiked the interest rates too early. If so, the US dollar will be under pressure, which gives hope for the EURUSD uptrend recovery. After all, the real rates in Europe are growing approximately as fast as in the United States, which makes the euro-area assets more promising, European stocks are undervalued compared to US peers, and the share of the euro in the central banks’ FX reserves must be increasing.
The greenback doesn’t strengthen although the vaccination campaign is progressing in the USA (65 million Americans were inoculated, which is 20% of the population), the reports on retail sales and PMI are positive. Investors understand that the US GDP rebound is good for the entire world economy, including the export-led euro area. When the EU countries start lifting lockdowns, the euro-area GDP should start growing rapidly, as it did last year, pushing the EURUSD up towards 1.25.
I do not think the euro bears can count on the S&P 500 correction, followed by a decline in the global risk appetite. Joe Biden's $1.9 billion is just the beginning. The new US administration intends to increase the fiscal stimulus to $3 trillion or $4 trillion, equivalent to 14-19% of GDP. Moreover, investments in infrastructure will be a priority in the second package.
Weekly EURUSD trading plan
Therefore, even if the EURUSD continues consolidation in the range of 1.2-1.22, as I suggested in one of the earlier articles, it will be more likely to break the trading channel upside than downside. It is still relevant to buy out the euro-dollar on the price fall.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-has-to-unlearn-forecast-as-of-24022021/?uid=285861726&cid=79634
Dynamics of real swap rates
LiteFinance
Euro: forewarned is forearmed. Forecast as of 23.02.2021
If you can’t control the causes, you will hardly influence the situation. The ECB’s attempt to stop the growth of the global bond market yields is doomed to a failure. How will it affect the EURUSD? Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
The ECB’s warning shots do not encourage the EURUSD bears. The euro bulls prefer to spot the signals about the recovery of the euro-area economy. Strong Germany IFO business climate index is a stronger argument for the euro buyers than Christine Lagarde's statement that the European Central Bank is closely monitoring the euro-area bond yields. If European bond yields continue growing, the euro-area financing conditions could deteriorate, setting back the euro-area GDP recovery. However, the bond markets do not depend on only the ECB.
Lagarde noted that that the yield on sovereign bonds is essential, as banks use it as a benchmark when establishing the cost of loans to households and firms. Therefore, the central bank "is closely monitoring the evolution of longer-term nominal bond yields." However, I believe the reasons lie much deeper. An increase in debt market rates makes European assets more promising, which contributes to the capital flow from the US into the euro area, supporting the EURUSD growth. According to UniCredit, if the euro-area bond yields continue growing, it’ll leave the ECB no choice but to step up the QE. The European Central Bank has already increased the weekly pace of bond purchases to €17.2 billion under the pandemic purchase program, the most since the week ended January 15.
However, if the ECB can’t control the causes, it can’t radically affect the situation. The bond yields are growing elsewhere in the world amid the expectations of the US GDP rebound. Bloomberg raised its US growth forecast for 2021 from 3.5% to 4.6%, suggesting it could be revised up to 6%-7% if Congress approves Joe Biden's $ 1.9 trillion fiscal stimulus package. Besides, the Fed officials try to convince investors that they are not worried about Treasury yields rally since it reflects the US economy’s strength.
The current situation has a lot in common with the events of 2013 when the US bond rates were also growing, but there was still a long time before the federal funds rate hike. The FOMC now expects it will not change the interest rates until 2023, and the asset purchase program at a monthly pace of $ 120 billion will continue.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-forewarned-is-forearmed-forecast-as-of-23022021/?uid=285861726&cid=79634
Dynamics of federal funds rate and US 10-year Treasury yield
If you can’t control the causes, you will hardly influence the situation. The ECB’s attempt to stop the growth of the global bond market yields is doomed to a failure. How will it affect the EURUSD? Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
The ECB’s warning shots do not encourage the EURUSD bears. The euro bulls prefer to spot the signals about the recovery of the euro-area economy. Strong Germany IFO business climate index is a stronger argument for the euro buyers than Christine Lagarde's statement that the European Central Bank is closely monitoring the euro-area bond yields. If European bond yields continue growing, the euro-area financing conditions could deteriorate, setting back the euro-area GDP recovery. However, the bond markets do not depend on only the ECB.
Lagarde noted that that the yield on sovereign bonds is essential, as banks use it as a benchmark when establishing the cost of loans to households and firms. Therefore, the central bank "is closely monitoring the evolution of longer-term nominal bond yields." However, I believe the reasons lie much deeper. An increase in debt market rates makes European assets more promising, which contributes to the capital flow from the US into the euro area, supporting the EURUSD growth. According to UniCredit, if the euro-area bond yields continue growing, it’ll leave the ECB no choice but to step up the QE. The European Central Bank has already increased the weekly pace of bond purchases to €17.2 billion under the pandemic purchase program, the most since the week ended January 15.
However, if the ECB can’t control the causes, it can’t radically affect the situation. The bond yields are growing elsewhere in the world amid the expectations of the US GDP rebound. Bloomberg raised its US growth forecast for 2021 from 3.5% to 4.6%, suggesting it could be revised up to 6%-7% if Congress approves Joe Biden's $ 1.9 trillion fiscal stimulus package. Besides, the Fed officials try to convince investors that they are not worried about Treasury yields rally since it reflects the US economy’s strength.
The current situation has a lot in common with the events of 2013 when the US bond rates were also growing, but there was still a long time before the federal funds rate hike. The FOMC now expects it will not change the interest rates until 2023, and the asset purchase program at a monthly pace of $ 120 billion will continue.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-forewarned-is-forearmed-forecast-as-of-23022021/?uid=285861726&cid=79634
Dynamics of federal funds rate and US 10-year Treasury yield
LiteFinance
EURUSD: chained together. Forecast as of 22.02.2021
The Treasury yield rally and the divergence in the economic expansion of the USA and the euro-area do not send the EURUSD down yet. What is the reason? Where will the euro-dollar go next? Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
The USA manages the crisis successfully: the number of new COVID-19 is declining, vaccination is progressing, and the economic surprise index, which shows the difference between actual and projected data, featured the best rise since late 2017. As a result, the Treasury yield is rallying up, which, however, doesn’t strengthen the US dollar, as it did in January.
It would seem that an increase in the attractiveness of the US assets, along with the growth-gap between the US and the euro area, should have started the EURUSD correction. The problem is that the US, having a large amount of debts, needs to lure foreign investors to auctions. This is achieved in two ways: by increasing the yield or weakening the greenback. It looks like in February, both methods are applied due to the approaching $ 1.9-trillion fiscal stimulus. In addition, if bond rates are growing not only in the United States but also in Europe, and carry traders, as well as emerging markets’ currencies, are challenged in this situation, then why would the dollar grow against the euro?
The euro bears could have benefited more from the Treasury yield rally but for the Fed dovish stance. Ahead of Jerome Powell's speech to Congress, there was a message on the Fed website that monetary policy will continue to support the economy until the recovery is complete. New York Federal Reserve President John Williams said he is not worried about the sharp rise in Treasury yields, as it is most likely associated with the expectations of rapid growth in US GDP.
Different rates of economic expansion are an essential driver of forex pricing. And the fact that the European Commission expects a double-dip recession in the euro area, and JP Morgan raises the forecast for US GDP to 6.4% in 2021 and 2.8% in 2022 should support the greenback. However, the EURUSD is not falling, which suggests that this advantage of the euro bears is underestimated.
Investors understand that the world economies are chained together because of the pandemic. The faster is the US economic recovery, the more chances the euro-area economy has to rebound. Besides, traders remember the events of mid-2020, when the euro-area GDP rose sharply amid the lifting of the lockdown. Nobody wants to be caught off guard if it happens again.
Weekly EURUSD trading plan
Therefore, the EURUSD bulls have the advantages to outperform their opponents. The major currency pair is likely to continue consolidation until there are signals of the euro-area economic recovery. The matter is in the range of the trading channel. If the price breaks out the resistance at 1.215, it should grow towards 1.221 and 1.224 or even higher. Otherwise, if the price doesn’t consolidate above level 1.215, it could go down to 1.208 and 1.204.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-chained-together-forecast-as-of-22022021/?uid=285861726&cid=79634
Dynamics of US economic surprise index
The Treasury yield rally and the divergence in the economic expansion of the USA and the euro-area do not send the EURUSD down yet. What is the reason? Where will the euro-dollar go next? Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
The USA manages the crisis successfully: the number of new COVID-19 is declining, vaccination is progressing, and the economic surprise index, which shows the difference between actual and projected data, featured the best rise since late 2017. As a result, the Treasury yield is rallying up, which, however, doesn’t strengthen the US dollar, as it did in January.
It would seem that an increase in the attractiveness of the US assets, along with the growth-gap between the US and the euro area, should have started the EURUSD correction. The problem is that the US, having a large amount of debts, needs to lure foreign investors to auctions. This is achieved in two ways: by increasing the yield or weakening the greenback. It looks like in February, both methods are applied due to the approaching $ 1.9-trillion fiscal stimulus. In addition, if bond rates are growing not only in the United States but also in Europe, and carry traders, as well as emerging markets’ currencies, are challenged in this situation, then why would the dollar grow against the euro?
The euro bears could have benefited more from the Treasury yield rally but for the Fed dovish stance. Ahead of Jerome Powell's speech to Congress, there was a message on the Fed website that monetary policy will continue to support the economy until the recovery is complete. New York Federal Reserve President John Williams said he is not worried about the sharp rise in Treasury yields, as it is most likely associated with the expectations of rapid growth in US GDP.
Different rates of economic expansion are an essential driver of forex pricing. And the fact that the European Commission expects a double-dip recession in the euro area, and JP Morgan raises the forecast for US GDP to 6.4% in 2021 and 2.8% in 2022 should support the greenback. However, the EURUSD is not falling, which suggests that this advantage of the euro bears is underestimated.
Investors understand that the world economies are chained together because of the pandemic. The faster is the US economic recovery, the more chances the euro-area economy has to rebound. Besides, traders remember the events of mid-2020, when the euro-area GDP rose sharply amid the lifting of the lockdown. Nobody wants to be caught off guard if it happens again.
Weekly EURUSD trading plan
Therefore, the EURUSD bulls have the advantages to outperform their opponents. The major currency pair is likely to continue consolidation until there are signals of the euro-area economic recovery. The matter is in the range of the trading channel. If the price breaks out the resistance at 1.215, it should grow towards 1.221 and 1.224 or even higher. Otherwise, if the price doesn’t consolidate above level 1.215, it could go down to 1.208 and 1.204.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-chained-together-forecast-as-of-22022021/?uid=285861726&cid=79634
Dynamics of US economic surprise index
LiteFinance
Euro benefits from carry trades. Forecast as of 19.02.2021
The events of the beginning of the year look like the taper tantrum of 2013, but the Fed hasn’t yet commented on the situation. The US central bank is likely to let the US economy overheat, increasing the chance of the EURUSD uptrend recovery. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
The rising rates of the global debt market concern not only me but also institutional investors and central banks. The minutes of the January meetings of the Fed and the ECB show that the FOMC expresses much more concern about financial instability than Jerome Powell, who says the economic risks are moderate. The ECB board tried to calm the markets by stating that the evolution of real, not nominal, rates matters to monetary policy. In January, the issue was discussed, most likely initiated by Isabel Schnabel, who warned that higher yields could hit the stock market.
According to MUFG Bank, the fact that Treasury rates are significantly higher than a few days ago may force investors to reconsider their risk appetite. In the past few months, low bond yields encouraged investors to trade stocks. JP Morgan notes that if there is anything to worry about, it is the high share of emerging markets’ assets in investment portfolios.
The events of the beginning of 2020 look like the taper tantrum of 2013. However, the Treasury yields were rising because of the Fed’s announcement of future tapering of the QE. At present, the US yields are growing amid the hopes for a rapid recovery of the global growth and inflation rise. The surge in bond yields in the US and Europe presses down carry trades by narrowing spreads. Traders are worried and exit trades, which strengthens funding currencies, such as the euro and the greenback, and results in the EURUSD consolidation.
Euro strengthens amid the Governing Council members' comments, expressed in the minutes of the ECB January meeting. According to the ECB board members, the measures taken in December need more time to take full effect. Such speeches suggest that, even if European bond yields continue rising, the ECB will hardly react by the QE expansion.
Concerns and fears are not the same as real events. Although EURUSD tends to consolidate in the short-term, the euro medium-term outlook remains bullish also because the Fed and the Treasury are likely to let the US economy overheat. Janet Yellen's calls for Congress to provide massive stimulus and her status as an absolute insider with the Fed suggest that the Federal Reserve will maintain the ultra-easy monetary policy for a long time and act according to the principle of "spend now, pay later," offering to fund the debt at the expense of the central bank.
Weekly EURUSD trading plan
This cooperation of the Fed and the Treasury already took place in the 1950s, when US GDP grew by 8% -10% three times in a decade. If history repeats itself, the US could be the only driver for the global economic recovery. If so, investors will again be interested in risky assets, the dollar will fall, and the EURUSD will reach 1.25. In the meanwhile, the euro-dollar tends to consolidate in the range of 1.2-1.22. I recommend traders to focus on intraday trading strategies.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-benefits-from-carry-trades-forecast-as-of-19022021/?uid=285861726&cid=79634
Dynamics of bond yield spread
The events of the beginning of the year look like the taper tantrum of 2013, but the Fed hasn’t yet commented on the situation. The US central bank is likely to let the US economy overheat, increasing the chance of the EURUSD uptrend recovery. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
The rising rates of the global debt market concern not only me but also institutional investors and central banks. The minutes of the January meetings of the Fed and the ECB show that the FOMC expresses much more concern about financial instability than Jerome Powell, who says the economic risks are moderate. The ECB board tried to calm the markets by stating that the evolution of real, not nominal, rates matters to monetary policy. In January, the issue was discussed, most likely initiated by Isabel Schnabel, who warned that higher yields could hit the stock market.
According to MUFG Bank, the fact that Treasury rates are significantly higher than a few days ago may force investors to reconsider their risk appetite. In the past few months, low bond yields encouraged investors to trade stocks. JP Morgan notes that if there is anything to worry about, it is the high share of emerging markets’ assets in investment portfolios.
The events of the beginning of 2020 look like the taper tantrum of 2013. However, the Treasury yields were rising because of the Fed’s announcement of future tapering of the QE. At present, the US yields are growing amid the hopes for a rapid recovery of the global growth and inflation rise. The surge in bond yields in the US and Europe presses down carry trades by narrowing spreads. Traders are worried and exit trades, which strengthens funding currencies, such as the euro and the greenback, and results in the EURUSD consolidation.
Euro strengthens amid the Governing Council members' comments, expressed in the minutes of the ECB January meeting. According to the ECB board members, the measures taken in December need more time to take full effect. Such speeches suggest that, even if European bond yields continue rising, the ECB will hardly react by the QE expansion.
Concerns and fears are not the same as real events. Although EURUSD tends to consolidate in the short-term, the euro medium-term outlook remains bullish also because the Fed and the Treasury are likely to let the US economy overheat. Janet Yellen's calls for Congress to provide massive stimulus and her status as an absolute insider with the Fed suggest that the Federal Reserve will maintain the ultra-easy monetary policy for a long time and act according to the principle of "spend now, pay later," offering to fund the debt at the expense of the central bank.
Weekly EURUSD trading plan
This cooperation of the Fed and the Treasury already took place in the 1950s, when US GDP grew by 8% -10% three times in a decade. If history repeats itself, the US could be the only driver for the global economic recovery. If so, investors will again be interested in risky assets, the dollar will fall, and the EURUSD will reach 1.25. In the meanwhile, the euro-dollar tends to consolidate in the range of 1.2-1.22. I recommend traders to focus on intraday trading strategies.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-benefits-from-carry-trades-forecast-as-of-19022021/?uid=285861726&cid=79634
Dynamics of bond yield spread
LiteFinance
How to manage the dollar smile? Forecast as of 18.02.2021
Europe faces a recession while the USA creates new jobs and companies. The US GDP could be up 9.5%, while the euro area could slide into a double-dip recession. Naturally, the EURUSD is declining. How long will the correction last? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
The market economy is based on immunity – its ability to independently cope with the emerging troubles while the administrative economy is similar to chemotherapy. There is a chance of a cure for the disease, but it is unknown how other organs will react to the medicine. The US approach to managing the pandemic is tighter but also more flexible than that of the euro area. The Eu governments prohibit layoffs and bankruptcy, creating the possibility of zombie companies emerging. The US helps those who can really do it to survive. Different strategies increase the divergence in the economic growth, which still encourages the EURUSD bears.
The euro-area economies are still locked down while the US is creating new companies and new jobs. These circumstances revive the dollar smile theory. The dollar smile theory suggests the greenback's strengthening in response to the recession due to investors’ demand for safe-havens in the first stage, the dollar weakening in the second stage amid the Fed’s aggressive monetary expansion, and, finally, the USD growth in the third stage due to the different recovery rates of the US GDP and its global peers. Looking at the European lockdown, the EU administrative methods of the pandemic management and the US positive economic data, it seems that the dollar is entering the third stage.
U.S. retail sales surged in January by the most in seven months (+5.3% Y-o-Y) amid the massive fiscal stimulus under Donald Trump. Joe Biden is willing to increase the financial assistance to the economy, which suggests the US GDP should rebound already in the first quarter. Atlanta Fed GDPNow model signals that the US GDP will expand by 9.5%, which is significantly higher than its forecast of + 4.5% a week ago.
The economy is growing, inflationary expectations are growing, and Treasury yields are growing. All the necessary conditions are emerging for the normalization of the Fed's monetary policy. The first step should be to cut the asset purchase program by $ 120 billion a month, the hints at which strengthened the greenback in January. Jerome Powell discouraged the dollar bulls by stating that the Fed is unwilling to repeat the errors that resulted in the taper tantrum in 2013. However, the question of a pullback on the US QE is still open. In the minutes of the FOMC January meeting, officials noted that it would take some time before the QE reduction conditions are met.
It would seem that the growing popularity of the dollar smile theory should break the EURUSD uptrend or at least result in a deep correction down. The matter is that this theory is not the only one. China, the USA, and the euro area are all in the same boat because of the pandemic, and the success of the US economy could ultimately press the greenback down.
Weekly EURUSD trading plan
I believe both theories are viable. The latter will work out if there are signs of the euro-area economic recovery. These signs can well emerge from Germany’s and euro-area PMI data for February. If the euro-area economic data change positively, it will be relevant to buy the EURUSD on the breakouts of the resistances at 1.2065, 1.2085 and 1.2095.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/how-to-manage-dollar-smile-forecast-as-of-18022021/?uid=285861726&cid=79634
Dynamics of US retail sales
Europe faces a recession while the USA creates new jobs and companies. The US GDP could be up 9.5%, while the euro area could slide into a double-dip recession. Naturally, the EURUSD is declining. How long will the correction last? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
The market economy is based on immunity – its ability to independently cope with the emerging troubles while the administrative economy is similar to chemotherapy. There is a chance of a cure for the disease, but it is unknown how other organs will react to the medicine. The US approach to managing the pandemic is tighter but also more flexible than that of the euro area. The Eu governments prohibit layoffs and bankruptcy, creating the possibility of zombie companies emerging. The US helps those who can really do it to survive. Different strategies increase the divergence in the economic growth, which still encourages the EURUSD bears.
The euro-area economies are still locked down while the US is creating new companies and new jobs. These circumstances revive the dollar smile theory. The dollar smile theory suggests the greenback's strengthening in response to the recession due to investors’ demand for safe-havens in the first stage, the dollar weakening in the second stage amid the Fed’s aggressive monetary expansion, and, finally, the USD growth in the third stage due to the different recovery rates of the US GDP and its global peers. Looking at the European lockdown, the EU administrative methods of the pandemic management and the US positive economic data, it seems that the dollar is entering the third stage.
U.S. retail sales surged in January by the most in seven months (+5.3% Y-o-Y) amid the massive fiscal stimulus under Donald Trump. Joe Biden is willing to increase the financial assistance to the economy, which suggests the US GDP should rebound already in the first quarter. Atlanta Fed GDPNow model signals that the US GDP will expand by 9.5%, which is significantly higher than its forecast of + 4.5% a week ago.
The economy is growing, inflationary expectations are growing, and Treasury yields are growing. All the necessary conditions are emerging for the normalization of the Fed's monetary policy. The first step should be to cut the asset purchase program by $ 120 billion a month, the hints at which strengthened the greenback in January. Jerome Powell discouraged the dollar bulls by stating that the Fed is unwilling to repeat the errors that resulted in the taper tantrum in 2013. However, the question of a pullback on the US QE is still open. In the minutes of the FOMC January meeting, officials noted that it would take some time before the QE reduction conditions are met.
It would seem that the growing popularity of the dollar smile theory should break the EURUSD uptrend or at least result in a deep correction down. The matter is that this theory is not the only one. China, the USA, and the euro area are all in the same boat because of the pandemic, and the success of the US economy could ultimately press the greenback down.
Weekly EURUSD trading plan
I believe both theories are viable. The latter will work out if there are signs of the euro-area economic recovery. These signs can well emerge from Germany’s and euro-area PMI data for February. If the euro-area economic data change positively, it will be relevant to buy the EURUSD on the breakouts of the resistances at 1.2065, 1.2085 and 1.2095.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/how-to-manage-dollar-smile-forecast-as-of-18022021/?uid=285861726&cid=79634
Dynamics of US retail sales
LiteFinance
Will red line stop dollar? Forecast as of 17.02.2021
The euphoria in the US stock market is dangerous for the EURUSD bulls. The fundamental estimates of the stock indexes suggest they are overvalued. How will the euro react? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
No asset can be rising indefinitely. This applies to both the euro, which was substantially growing in the second week of February, and the S&P 500, which has been hitting all-time highs. Investors ignored too high fundamental estimates of the stock index, explaining this with a unique mode of historically low Treasury yields. However, the rally of the US 10-year bond yield, which is higher than the pre-pandemic levels, made traders doubt the US stock market's ability to continue the rally.
When investors buy stocks and sell bonds, which translates into higher yields, they believe in the global GDP rebound. For example, 91% of the 225 $ 645 billion asset managers in a BofA Merrill Lynch survey indicated they expect a stronger economy. They reduced the share of cash in portfolios to 3.8%, the lowest level since March 2013. Risk appetite is exceptionally high, and the only reason for the bearish sentiment is the lack of reasons for the bearish sentiment. The S&P 500 traded recently 22.52 times its projected earnings over the next 12 months, above a five-yearaverage of 17.96. Under such circumstances, the emergence of doubt can result in a correction down. And the rally in Treasury yields gave rise to such doubts.
The US bond market rates are growing even though the US economic data are not positive enough. Traders sell Treasuries on the news about the rise of the Germany ZEW economic sentiment or higher corporate earnings forecasts in the euro-area markets. The US Treasury yields growth the S&P 500 is overvalued, which could start a correction, worsen the global risk appetite and send the EURUSD down.
The EURUSD fell amid the bulls' inability to hold level 1.215. The euro has many vulnerabilities, including slow vaccination and investors' desire to use the euro as a funding currency in carry trades. According to Bloomberg estimates, a portfolio of 10 emerging markets’ currencies, funded in euros, would have yielded a 2.2% profit, and a 1.1% profit if funded in the US dollars. Furthermore, there is a rally in Treasury yields, which reduces the greenback’s appeal as a funding currency in trading the difference in interest rates.
Weekly EURUSD trading plan
I do not think the EURUSD bulls faced a disaster. In the first half of 2020, the S&P 500 was ahead of the economy. Likewise, the Treasury yields are rising now. The greenback’s problem is that the Fed won’t react to the yield rally. The central bank won’t take away the punch bowl just as the party gets going. Therefore, it is still relevant to buy the euro-dollar on the corrections to1.2045 or 1.985-1.2, or if the price is again above the resistance at 1.215. Level 1.208 is still a kind of the red line, indicating the market sentiment.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/will-red-line-stop-dollar-forecast-as-of-17022021/?uid=285861726&cid=79634
Dynamics of P/E and the ratio of the US bonds
The euphoria in the US stock market is dangerous for the EURUSD bulls. The fundamental estimates of the stock indexes suggest they are overvalued. How will the euro react? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
No asset can be rising indefinitely. This applies to both the euro, which was substantially growing in the second week of February, and the S&P 500, which has been hitting all-time highs. Investors ignored too high fundamental estimates of the stock index, explaining this with a unique mode of historically low Treasury yields. However, the rally of the US 10-year bond yield, which is higher than the pre-pandemic levels, made traders doubt the US stock market's ability to continue the rally.
When investors buy stocks and sell bonds, which translates into higher yields, they believe in the global GDP rebound. For example, 91% of the 225 $ 645 billion asset managers in a BofA Merrill Lynch survey indicated they expect a stronger economy. They reduced the share of cash in portfolios to 3.8%, the lowest level since March 2013. Risk appetite is exceptionally high, and the only reason for the bearish sentiment is the lack of reasons for the bearish sentiment. The S&P 500 traded recently 22.52 times its projected earnings over the next 12 months, above a five-yearaverage of 17.96. Under such circumstances, the emergence of doubt can result in a correction down. And the rally in Treasury yields gave rise to such doubts.
The US bond market rates are growing even though the US economic data are not positive enough. Traders sell Treasuries on the news about the rise of the Germany ZEW economic sentiment or higher corporate earnings forecasts in the euro-area markets. The US Treasury yields growth the S&P 500 is overvalued, which could start a correction, worsen the global risk appetite and send the EURUSD down.
The EURUSD fell amid the bulls' inability to hold level 1.215. The euro has many vulnerabilities, including slow vaccination and investors' desire to use the euro as a funding currency in carry trades. According to Bloomberg estimates, a portfolio of 10 emerging markets’ currencies, funded in euros, would have yielded a 2.2% profit, and a 1.1% profit if funded in the US dollars. Furthermore, there is a rally in Treasury yields, which reduces the greenback’s appeal as a funding currency in trading the difference in interest rates.
Weekly EURUSD trading plan
I do not think the EURUSD bulls faced a disaster. In the first half of 2020, the S&P 500 was ahead of the economy. Likewise, the Treasury yields are rising now. The greenback’s problem is that the Fed won’t react to the yield rally. The central bank won’t take away the punch bowl just as the party gets going. Therefore, it is still relevant to buy the euro-dollar on the corrections to1.2045 or 1.985-1.2, or if the price is again above the resistance at 1.215. Level 1.208 is still a kind of the red line, indicating the market sentiment.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/will-red-line-stop-dollar-forecast-as-of-17022021/?uid=285861726&cid=79634
Dynamics of P/E and the ratio of the US bonds
LiteFinance
Platinum: Don’t kick a sleeping dog. Forecast as of 16.02.2021
That is the market: victories and fame follow losses. A typical example is platinum, which has grown by more than 20% in value since the beginning of 2021. Where will the XPTUSD in 2021? Let us discuss this topic and make up a trading plan.
Fundamental platinum forecast for a year
We all seek what is better, and investors and produces seek what is cheaper. Platinum could replace more expensive gold when hedging against inflation risks and more expensive palladium in the car industry. Therefore, the XPTUSD has hit its six-year high. Since the beginning of the year, the platinum price has been up by 21%, significantly outperforming other precious metals, which meets investors' expectations. Remember, in late 2020, I suggested platinum purchases be one of the best trading strategies in 2021.
According to Johnson Matthey research, the precious metal market was in a moderate deficit last year amid a 20% drop in production due to a lockdown in South Africa and other producing countries and a 22% decline in global autocatalyst demand. Europe suffered particularly badly. Care sales in the euro area fell by 40% at the recession peak and recovered to 20% Y-o-Y by the end of 2020. In 2021, the precious metals market structure should radically change, which encourages the XPTUSD bulls.
Furthermore, substantial price spreads between gold and platinum have boosted investors’ interest in XPT as a cheaper metal. According to the World Platinum Investment Council, the platinum ETFs holdings reached 3.9 million ounces at the end of January, up from 3.4 million ounces a year earlier. According to Johnson Matthey, the market balance and, accordingly, the platinum prices will largely depend on the demand for the platinum ETF products.
An essential driver of the XPTUSD rally is the platinum’s ability to replace gold in investments and palladium in the production of automotive catalysts for gasoline engines. Both assets of the platinum group could be pressed by the advent of the electric car era. However, if hydrogen fuel technology that uses platinum becomes widespread, it will drive up the XPT prices even higher. Even it doesn’t occur now, but a few years later, it doesn’t matter. Expectations drive markets.
Massive fiscal stimulus, ultra-easy monetary policy, the growing chance of the inflation rise, and the US dollar’s weakness create a favorable environment for the gold price rise. However, the XAUUSD is not growing. One of the reasons is that gold is an overbought asset. In 2020, the XAUUSD was 24% up. Investors are likely to realize this fact and are ow interested in other precious metals. The most appealing is platinum; it looks like a dog, who was kicked and is now picked.
Platinum trading plan for a year
Platinum could repeat the gold’s success, which performed the best rise in 2020 over the past decade. The platinum price has already reached the target at $1330, defined in December and January; it is at the beginning of the commodity market super-cycle. If so, it is time to revise the expected profit for the XPTUSD longs up to $1420 per ounce for 2021. I recommend holding and adding up to long positions on the corrections.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/platinum-dont-kick-a-sleeping-dog-forecast-as-of-16022021/?uid=285861726&cid=79634
Dynamics of precious metals in 2021
That is the market: victories and fame follow losses. A typical example is platinum, which has grown by more than 20% in value since the beginning of 2021. Where will the XPTUSD in 2021? Let us discuss this topic and make up a trading plan.
Fundamental platinum forecast for a year
We all seek what is better, and investors and produces seek what is cheaper. Platinum could replace more expensive gold when hedging against inflation risks and more expensive palladium in the car industry. Therefore, the XPTUSD has hit its six-year high. Since the beginning of the year, the platinum price has been up by 21%, significantly outperforming other precious metals, which meets investors' expectations. Remember, in late 2020, I suggested platinum purchases be one of the best trading strategies in 2021.
According to Johnson Matthey research, the precious metal market was in a moderate deficit last year amid a 20% drop in production due to a lockdown in South Africa and other producing countries and a 22% decline in global autocatalyst demand. Europe suffered particularly badly. Care sales in the euro area fell by 40% at the recession peak and recovered to 20% Y-o-Y by the end of 2020. In 2021, the precious metals market structure should radically change, which encourages the XPTUSD bulls.
Furthermore, substantial price spreads between gold and platinum have boosted investors’ interest in XPT as a cheaper metal. According to the World Platinum Investment Council, the platinum ETFs holdings reached 3.9 million ounces at the end of January, up from 3.4 million ounces a year earlier. According to Johnson Matthey, the market balance and, accordingly, the platinum prices will largely depend on the demand for the platinum ETF products.
An essential driver of the XPTUSD rally is the platinum’s ability to replace gold in investments and palladium in the production of automotive catalysts for gasoline engines. Both assets of the platinum group could be pressed by the advent of the electric car era. However, if hydrogen fuel technology that uses platinum becomes widespread, it will drive up the XPT prices even higher. Even it doesn’t occur now, but a few years later, it doesn’t matter. Expectations drive markets.
Massive fiscal stimulus, ultra-easy monetary policy, the growing chance of the inflation rise, and the US dollar’s weakness create a favorable environment for the gold price rise. However, the XAUUSD is not growing. One of the reasons is that gold is an overbought asset. In 2020, the XAUUSD was 24% up. Investors are likely to realize this fact and are ow interested in other precious metals. The most appealing is platinum; it looks like a dog, who was kicked and is now picked.
Platinum trading plan for a year
Platinum could repeat the gold’s success, which performed the best rise in 2020 over the past decade. The platinum price has already reached the target at $1330, defined in December and January; it is at the beginning of the commodity market super-cycle. If so, it is time to revise the expected profit for the XPTUSD longs up to $1420 per ounce for 2021. I recommend holding and adding up to long positions on the corrections.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/platinum-dont-kick-a-sleeping-dog-forecast-as-of-16022021/?uid=285861726&cid=79634
Dynamics of precious metals in 2021
LiteFinance
Yen uses old ties. Forecast as of 15.02.2021
Fundamental Japanese Yen forecast for six months
While humanity only dreams of picking up the threads of an old life, financial markets are actively doing this. The old ties, which had been relevant for ten years, were broken from 2018 to 2020 due to trade wars and the pandemic. In 2021 investors start to turn to them again. Those who do it first will get the opportunity to make the most significant profit.
If for the stock market, the S&P 500 and the VIX volatility index are the best indicators of investor risk appetite, then for Forex traders, it has traditionally been the AUDJPY pair. The Australian dollar was considered to be a profitable currency due to the higher rates of the Australian debt market compared to other issuers of G10 currencies. The yen was ranked among the main funding currencies and safe-haven assets. Donald Trump's protectionist policies and the pandemic have turned everything upside down. The RBA significantly eased monetary policy, Australian bond yields went down, and some investors began to use the AUD as a funding currency against the EM currencies in carry trades.
While the Australian dollar is supported by confidence in the global economic recovery and the booming commodity market, the yen is under pressure from the vaccination process and relentlessly rising US debt market rates. Last year, I wrote that because of the Fed's large-scale monetary stimulus, the dollar took away the status of the main safe-haven asset from the yen. However, the rally in Treasury yields suggests that there has been a return to old values. In my opinion, this makes the yen the main Forex outsider in 2021. The steady growth of the Nikkei 225 also puts pressure on the Japanese currency.
Looking at how the S&P 500 hits all-time highs, investors want to buy US stocks though knowing the risks. The fact that the stock index has risen to an unprecedented height increases the risk of a pullback. Another thing is the Nikkei 225. It reached 30,000 for the first time since 1990, but it is still far from the record high of 38915. Buying Japanese stocks by foreign investors while hedging currency risks by selling the yen is a bullish driver for USDJPY and other related pairs. This connection worked for years and was broken in 2018-2020. But in 2021, it returns to the game again.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/yen-uses-old-ties-forecast-as-of-15022021/?uid=285861726&cid=79634
Dynamics of AUDJPY and S&P 500
Fundamental Japanese Yen forecast for six months
While humanity only dreams of picking up the threads of an old life, financial markets are actively doing this. The old ties, which had been relevant for ten years, were broken from 2018 to 2020 due to trade wars and the pandemic. In 2021 investors start to turn to them again. Those who do it first will get the opportunity to make the most significant profit.
If for the stock market, the S&P 500 and the VIX volatility index are the best indicators of investor risk appetite, then for Forex traders, it has traditionally been the AUDJPY pair. The Australian dollar was considered to be a profitable currency due to the higher rates of the Australian debt market compared to other issuers of G10 currencies. The yen was ranked among the main funding currencies and safe-haven assets. Donald Trump's protectionist policies and the pandemic have turned everything upside down. The RBA significantly eased monetary policy, Australian bond yields went down, and some investors began to use the AUD as a funding currency against the EM currencies in carry trades.
While the Australian dollar is supported by confidence in the global economic recovery and the booming commodity market, the yen is under pressure from the vaccination process and relentlessly rising US debt market rates. Last year, I wrote that because of the Fed's large-scale monetary stimulus, the dollar took away the status of the main safe-haven asset from the yen. However, the rally in Treasury yields suggests that there has been a return to old values. In my opinion, this makes the yen the main Forex outsider in 2021. The steady growth of the Nikkei 225 also puts pressure on the Japanese currency.
Looking at how the S&P 500 hits all-time highs, investors want to buy US stocks though knowing the risks. The fact that the stock index has risen to an unprecedented height increases the risk of a pullback. Another thing is the Nikkei 225. It reached 30,000 for the first time since 1990, but it is still far from the record high of 38915. Buying Japanese stocks by foreign investors while hedging currency risks by selling the yen is a bullish driver for USDJPY and other related pairs. This connection worked for years and was broken in 2018-2020. But in 2021, it returns to the game again.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/yen-uses-old-ties-forecast-as-of-15022021/?uid=285861726&cid=79634
Dynamics of AUDJPY and S&P 500
LiteFinance
Dollar: Time matters. Forecast as of 12.02.2021
The Fed’s policy remains unchanged over a long time, making investors revise the former trading ideas, suggesting the EURUSD uptrend recovery. Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
Experienced traders know that the time of the investment is often more important than the trade direction. In late 2020, investors were confident that the EURUSD would probably reach level 1.25 in the first quarter. In early January, Reuters experts predicted 0.6% GDP growth in the eurozone during the first three months of the year. In addition to the vaccination progress and high risk appetite, the euro-area economic recovery should have encouraged the euro bulls to go ahead. However, economists revised the projections down due to lockdowns and slow vaccination. Now, the euro-area GDP is expected to contract by 0.8%. Traders are disappointed. If the euro fails to hit a level of $1.26 in the second quarter, it could fall to $1.15.
If we solve the time puzzle, we can learn a lot. And we could achieve a lot. Remarkably, the Fed could give investors a clue. The former US central bankers didn’t want to provide accurate signals about the Fed’s future policy as this would either encourage excessive complacency in the market or discourage investors. Or both at the same time. However, in the last decade, the US central bankers are prone to demonstrating how the Fed will react to incoming economic data, which is supposed to prevent the market from shocks. And here's a new feature. The regulator focuses on time. The Fed does not intend to raise the federal fund rate earlier than 2023; it will not pull back on the QE until the end of 2021. It does not matter what the direction of economic indicators will be. The main factor is time!
If the Fed’s attitude change, investors should also change their views. Although the US stock indexes look overbought, in terms of P/E ratio, they do not cease breaking through the all-time highs. And the trading volumes on the US stock exchanges are close to their ten-year high, which took place during the market turmoil in March.
What's the matter? Have Investors lost their sense of Fear amid the huge flows of cheap liquidity? This is certainly true, but they must believe that the Fed will keep rates low for a very long time. This means that fundamental assessments need to be revised. The S&P 500 rally is far from being exhausted!
What is valid for the equity market is right for Forex. The dollar smile theory should have worked out. The divergence in the economic expansion should have supported the dollar bulls. Wall Street Journal experts revised the forecasts for US GDP for 2021 to 4.9%, up from 4.3% in January. On the contrary, the European Commission lowers its projections for the euro-area economic growth to 3.9%. Nonetheless, the EURUSD is steadily rising! Is it a paradox?
Weekly EURUSD trading plan
The real reason is the Fed’s focus on time. The US low interest rates support not only the US economy but also global growth. The US GDP rise is a sign of the global GDP rebound. Therefore, it is relevant to buy the EURUSD on the breakout of the resistance 1.215 or on the correction towards 1.208.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-time-matters-forecast-as-of-12022021/?uid=285861726&cid=79634
Dynamics of trading volume in US stock exchanges
The Fed’s policy remains unchanged over a long time, making investors revise the former trading ideas, suggesting the EURUSD uptrend recovery. Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
Experienced traders know that the time of the investment is often more important than the trade direction. In late 2020, investors were confident that the EURUSD would probably reach level 1.25 in the first quarter. In early January, Reuters experts predicted 0.6% GDP growth in the eurozone during the first three months of the year. In addition to the vaccination progress and high risk appetite, the euro-area economic recovery should have encouraged the euro bulls to go ahead. However, economists revised the projections down due to lockdowns and slow vaccination. Now, the euro-area GDP is expected to contract by 0.8%. Traders are disappointed. If the euro fails to hit a level of $1.26 in the second quarter, it could fall to $1.15.
If we solve the time puzzle, we can learn a lot. And we could achieve a lot. Remarkably, the Fed could give investors a clue. The former US central bankers didn’t want to provide accurate signals about the Fed’s future policy as this would either encourage excessive complacency in the market or discourage investors. Or both at the same time. However, in the last decade, the US central bankers are prone to demonstrating how the Fed will react to incoming economic data, which is supposed to prevent the market from shocks. And here's a new feature. The regulator focuses on time. The Fed does not intend to raise the federal fund rate earlier than 2023; it will not pull back on the QE until the end of 2021. It does not matter what the direction of economic indicators will be. The main factor is time!
If the Fed’s attitude change, investors should also change their views. Although the US stock indexes look overbought, in terms of P/E ratio, they do not cease breaking through the all-time highs. And the trading volumes on the US stock exchanges are close to their ten-year high, which took place during the market turmoil in March.
What's the matter? Have Investors lost their sense of Fear amid the huge flows of cheap liquidity? This is certainly true, but they must believe that the Fed will keep rates low for a very long time. This means that fundamental assessments need to be revised. The S&P 500 rally is far from being exhausted!
What is valid for the equity market is right for Forex. The dollar smile theory should have worked out. The divergence in the economic expansion should have supported the dollar bulls. Wall Street Journal experts revised the forecasts for US GDP for 2021 to 4.9%, up from 4.3% in January. On the contrary, the European Commission lowers its projections for the euro-area economic growth to 3.9%. Nonetheless, the EURUSD is steadily rising! Is it a paradox?
Weekly EURUSD trading plan
The real reason is the Fed’s focus on time. The US low interest rates support not only the US economy but also global growth. The US GDP rise is a sign of the global GDP rebound. Therefore, it is relevant to buy the EURUSD on the breakout of the resistance 1.215 or on the correction towards 1.208.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-time-matters-forecast-as-of-12022021/?uid=285861726&cid=79634
Dynamics of trading volume in US stock exchanges
LiteFinance
Euro is given green light. Forecast as of 11.02.2021
Weekly euro fundamental forecast
The market is like a road. If something goes not according to the plan, some people are stepping back. The primary investment strategy now suggests that, amid universal vaccination, mass fiscal stimuli, and ultra-easy monetary policy, the US, along with China, will be the growth driver for the global GDP. If so, the risk appetite will be high, pressing down safe-havens, such as the US dollar. One of the signs of the US strength is the growing inflation rate. However, a poor reading of the US consumer price index discouraged some investors.
CPI and core inflation rose by only 1.4% in January, although there was much talk before the data release that the adoption of the $ 1.9 billion stimulus package would overheat the economy. The growing money supply, the Fed’s unwillingness to take away the punch bowl in the middle of the party, and the expected boom in consumer spending should have accelerated the US inflation. It is not the case now.
An essential element of the global economic rebound is the Fed’s position. In December, the Federal Reserve projected the US GDP should grow by 4.2% in 2021, and the interest rate should be at the current level of 0%-0.25% at least through the end of 2023. Joe Biden's massive fiscal stimulus and rapid vaccination should encourage the Fed to revise the forecast up. According to Oxford Economics, US GDP will grow by 5.9% this year, and the derivatives market expects the Fed to hike the federal fund rate at the end of 2022.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-is-given-green-light-forecast-as-of-11022021/?uid=285861726&cid=79634
Dynamics of US inflation
Weekly euro fundamental forecast
The market is like a road. If something goes not according to the plan, some people are stepping back. The primary investment strategy now suggests that, amid universal vaccination, mass fiscal stimuli, and ultra-easy monetary policy, the US, along with China, will be the growth driver for the global GDP. If so, the risk appetite will be high, pressing down safe-havens, such as the US dollar. One of the signs of the US strength is the growing inflation rate. However, a poor reading of the US consumer price index discouraged some investors.
CPI and core inflation rose by only 1.4% in January, although there was much talk before the data release that the adoption of the $ 1.9 billion stimulus package would overheat the economy. The growing money supply, the Fed’s unwillingness to take away the punch bowl in the middle of the party, and the expected boom in consumer spending should have accelerated the US inflation. It is not the case now.
An essential element of the global economic rebound is the Fed’s position. In December, the Federal Reserve projected the US GDP should grow by 4.2% in 2021, and the interest rate should be at the current level of 0%-0.25% at least through the end of 2023. Joe Biden's massive fiscal stimulus and rapid vaccination should encourage the Fed to revise the forecast up. According to Oxford Economics, US GDP will grow by 5.9% this year, and the derivatives market expects the Fed to hike the federal fund rate at the end of 2022.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-is-given-green-light-forecast-as-of-11022021/?uid=285861726&cid=79634
Dynamics of US inflation
LiteFinance
Euro and Draghi effect. Forecast as of 10.02.2021
Weekly euro fundamental forecast
Financial markets trade reflation and enjoy the process. The S&P 500 has broken through the all-time highs eight times in 2021 amid the trust in vaccines and fiscal stimulus provided by Joe Biden, as well as strong corporate reporting. According to FactSet, out of the 295 reported companies included in the stock index calculation base, 81% exceeded analysts' expectations for earnings growth. In January, the US stock market and EURUSD were trading in the opposite directions due to concerns about too slow vaccination progress in Europe. In February, the S&P 500, as in the good old days, again supports the euro bulls.
According to Citi, when the stock index reaches level 4000, investors could start exiting longs, triggering a drawdown. Nonetheless, the US stock market is exposed to a risk of short squeezing, the short-sellers’ positions of $21 billion are losing, and their closures will encourage bulls.
Besides, the US stock market rally and the associated increase in the risk appetite are not the only drivers of the EURUSD growth. Amid a decrease in the COVID-19 cases as the seasonal peak is over, investors accepted that the vaccination progresses slower in Europe than in the USA. After all, the economies will be reopened when the coronavirus is defeated, which is now happening without vaccines. The Mario Draghi factor also strengthens the euro.
The importance of personality in history is difficult to overestimate. Financial markets welcomed Draghi’s return to big politics. Italy’s benchmark 10-year bond yield slipped below 0.5 % for the first time. Spain raised €5 billion in debt sale at a coupon of 1.45 %. This was the country’s first 50-year deal since 2016 when buyers demanded a much higher borrowing cost of 3.45 %. Buyers are exited amid a slowdown of the ECB’s asset purchases monthly pace to €15 billion, which suggests the Draghi effect. A super-Mario-led government pursuing pro-European reforms could increase the prospects for complex changes to EU fiscal rules, which in turn will boost Italy's economic growth.
Furthermore, the euro’s correction down lowered the risks of the ECB’s verbal interventions. The trade-weighted euro rolled down even deeper than the EURUSD.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-and-draghi-effect-forecast-as-of-10022021/?uid=285861726&cid=79634
Dynamics of EURUSD and S&P 500
Weekly euro fundamental forecast
Financial markets trade reflation and enjoy the process. The S&P 500 has broken through the all-time highs eight times in 2021 amid the trust in vaccines and fiscal stimulus provided by Joe Biden, as well as strong corporate reporting. According to FactSet, out of the 295 reported companies included in the stock index calculation base, 81% exceeded analysts' expectations for earnings growth. In January, the US stock market and EURUSD were trading in the opposite directions due to concerns about too slow vaccination progress in Europe. In February, the S&P 500, as in the good old days, again supports the euro bulls.
According to Citi, when the stock index reaches level 4000, investors could start exiting longs, triggering a drawdown. Nonetheless, the US stock market is exposed to a risk of short squeezing, the short-sellers’ positions of $21 billion are losing, and their closures will encourage bulls.
Besides, the US stock market rally and the associated increase in the risk appetite are not the only drivers of the EURUSD growth. Amid a decrease in the COVID-19 cases as the seasonal peak is over, investors accepted that the vaccination progresses slower in Europe than in the USA. After all, the economies will be reopened when the coronavirus is defeated, which is now happening without vaccines. The Mario Draghi factor also strengthens the euro.
The importance of personality in history is difficult to overestimate. Financial markets welcomed Draghi’s return to big politics. Italy’s benchmark 10-year bond yield slipped below 0.5 % for the first time. Spain raised €5 billion in debt sale at a coupon of 1.45 %. This was the country’s first 50-year deal since 2016 when buyers demanded a much higher borrowing cost of 3.45 %. Buyers are exited amid a slowdown of the ECB’s asset purchases monthly pace to €15 billion, which suggests the Draghi effect. A super-Mario-led government pursuing pro-European reforms could increase the prospects for complex changes to EU fiscal rules, which in turn will boost Italy's economic growth.
Furthermore, the euro’s correction down lowered the risks of the ECB’s verbal interventions. The trade-weighted euro rolled down even deeper than the EURUSD.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-and-draghi-effect-forecast-as-of-10022021/?uid=285861726&cid=79634
Dynamics of EURUSD and S&P 500
LiteFinance
Dollar wants to smile again. Forecast as of 05.02.2021
The leading vaccination rate in the USA compared to the euro area contributes to the expansion of divergence in economic growth and presses down the EURUSD. How long can this last? Let us discuss the Forex outlook and make up a trading plan.
Fundamental US dollar forecast for six months
The greenback seems to be smiling… The USD index has been growing for four weeks out of five this year, featuring the best trading performance since October in the first week of February. It reminds me of the dollar smile theory. According to the theory, the USD, first, strengthens amid the concerns about the recession risks; next, the dollar weakens amid the Fed's aggressive monetary stimulus. Then, it strengthens again amid the USD GDP rate outpacing the global growth.
The dollar smile theory fits well with the concepts of the greenback transformation from a safe-haven asset into a risky currency and uneven economic growth. The USD is strengthening even amid the growth of the US stock indexes, which break through all-time highs. Joe Biden is ready to compromise with the Republicans and reduce the previously announced fiscal stimulus amount of $1.9 trillion, but hardly by much. Investors expect $1 trillion, and if the actual aid package is larger, the S&P 500 will continue to rally. At the same time, the inverse correlation of stock indices with the US dollar is weakening, which, amid Treasury yields growth, suggests a change in the US dollar status. Why not use yesterday's safe-haven asset as a risky currency in carry trades today?
Remarkably, Reuters experts still believe that the current USD rally is just a temporary surge. According to 63 out of 73 economists, the greenback in 3 months will remain at current levels or decrease. The consensus forecast assumes EURUSD will rise to 1.23 and 1.25 in 6 and 12 months. Many experts believe that the outperformance of the US economy will ultimately crash the dollar. The US and China will become the drivers of the global GDP growth, which will negatively affect safe-haven assets. In addition to the progress in the euro-area vaccination campaign, this will result in the EURUSD uptrend recovery. I share the same point of view.
The main risks for this scenario are in the uneven recovery of the world economy, which will allow the dollar smile theory to work out, and suggest an earlier than currently assumed Fed’s monetary normalization. If the dollar bulls use both of the greenback’s advantages, we can consider the EURUSD uptrend to be broken down.
The uneven distribution of vaccines suggests that the GDP will grow in some countries and contract in other ones. But still, I hope that the EU's efforts to accelerate the vaccination process will be successful, and the euro area, together with China and the US, will become a driver of global economic growth. The Fed should consider the US economic situation and the global growth as well before deciding to wind down the QE.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-wants-to-smile-again-forecast-as-of-05022021/?uid=285861726&cid=79634
The leading vaccination rate in the USA compared to the euro area contributes to the expansion of divergence in economic growth and presses down the EURUSD. How long can this last? Let us discuss the Forex outlook and make up a trading plan.
Fundamental US dollar forecast for six months
The greenback seems to be smiling… The USD index has been growing for four weeks out of five this year, featuring the best trading performance since October in the first week of February. It reminds me of the dollar smile theory. According to the theory, the USD, first, strengthens amid the concerns about the recession risks; next, the dollar weakens amid the Fed's aggressive monetary stimulus. Then, it strengthens again amid the USD GDP rate outpacing the global growth.
The dollar smile theory fits well with the concepts of the greenback transformation from a safe-haven asset into a risky currency and uneven economic growth. The USD is strengthening even amid the growth of the US stock indexes, which break through all-time highs. Joe Biden is ready to compromise with the Republicans and reduce the previously announced fiscal stimulus amount of $1.9 trillion, but hardly by much. Investors expect $1 trillion, and if the actual aid package is larger, the S&P 500 will continue to rally. At the same time, the inverse correlation of stock indices with the US dollar is weakening, which, amid Treasury yields growth, suggests a change in the US dollar status. Why not use yesterday's safe-haven asset as a risky currency in carry trades today?
Remarkably, Reuters experts still believe that the current USD rally is just a temporary surge. According to 63 out of 73 economists, the greenback in 3 months will remain at current levels or decrease. The consensus forecast assumes EURUSD will rise to 1.23 and 1.25 in 6 and 12 months. Many experts believe that the outperformance of the US economy will ultimately crash the dollar. The US and China will become the drivers of the global GDP growth, which will negatively affect safe-haven assets. In addition to the progress in the euro-area vaccination campaign, this will result in the EURUSD uptrend recovery. I share the same point of view.
The main risks for this scenario are in the uneven recovery of the world economy, which will allow the dollar smile theory to work out, and suggest an earlier than currently assumed Fed’s monetary normalization. If the dollar bulls use both of the greenback’s advantages, we can consider the EURUSD uptrend to be broken down.
The uneven distribution of vaccines suggests that the GDP will grow in some countries and contract in other ones. But still, I hope that the EU's efforts to accelerate the vaccination process will be successful, and the euro area, together with China and the US, will become a driver of global economic growth. The Fed should consider the US economic situation and the global growth as well before deciding to wind down the QE.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-wants-to-smile-again-forecast-as-of-05022021/?uid=285861726&cid=79634
LiteFinance
Euro suffers losses. Forecast as of 04.02.2021
The slower the vaccination campaign progresses, the more likely are the lockdowns to continue and the recession to start in the euro-area. Besides, the Eurosceptics use the authorities’ failures for their purposes, which presses down the EURUSD. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
Donald Trump lost the presidential election due to the pandemic. At first, the White House did not recognize the threat and then very slowly closed the economy for a lockdown. In the first wave of COVID-19, the EU acted much more efficiently, laying the foundation for the EURUSD uptrend. However, the slow vaccination in the euro area presses down the euro bulls and the EU governments. Eurosceptics go ahead, and the rise in political risks contributes to the euro fall.
Marine Le Pen appears to be almost the only serious opponent of Emmanuel Macron in France's 2022 presidential elections. Their confrontation, which ended in the victory of the current head of state, triggered the euro rally in 2017. Nobody knows what will happen this time. Nor is there any certainty that Mario Draghi will save Italy. Yes, the ex-president of the ECB is most likely the best person for the worst job. Yes, financial markets were optimistic about his willingness to manage Italy's political crisis, which is evident from a narrower yield spread between Italian and German bonds. Still, it will be complicated for anyone to bring order to the chaos in which Rome lives today.
According to Bloomberg research, the euro-area economy is currently operating at 95% of its pre-pandemic capacity due to lockdowns. This is the equivalent of losing €12 billion a week. The euro area is several weeks behind the US in vaccination. The US will soon return to full-fledged work while the eurozone will maintain existing restrictions, which will cost it € 500-1000 billion within one or two months. Thus, the vaccination campaign directly impacts the economy and allows Eurosceptics to go ahead, which puts pressure on the euro. There is a clear divergence in economic growth, which is reflected in the different rates of the US and euro-area PMIs.
I don’t think that the surge of the euro-area inflation from -0.3% to 0.9% in January will be the reason for the ECB to pull back on the pandemic emergency purchase program. The rise in consumer prices resulted from temporary factors, and the Governing Council is likely to ignore it.
The US dollar is supported by the Treasury yield growth ahead of the auctions. In the week ending Feb 14, the Treasury plans to place 3-year bills, 10-year and 30-year bonds totaling $ 126 billion. The interest rates on the securities are rising, and investors remember that the growth of Treasury yields in January resulted in the greenback strengthening.
Weekly EURUSD trading plan
The current Forex sentiment makes banks abandon bullish forecasts for the euro. Nomura exits EURUSD longs, and Deutsche Bank says the pair can go down to 1.18. It is still relevant to hold down shorts entered at level 1.208 and enter short-term sell trades at least until the EURUSD goes up above the indicated level.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-suffers-losses-forecast-as-of-04022021/?uid=285861726&cid=79634
Dynamics of Italy-Germany 10 Year Bond Spread
The slower the vaccination campaign progresses, the more likely are the lockdowns to continue and the recession to start in the euro-area. Besides, the Eurosceptics use the authorities’ failures for their purposes, which presses down the EURUSD. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
Donald Trump lost the presidential election due to the pandemic. At first, the White House did not recognize the threat and then very slowly closed the economy for a lockdown. In the first wave of COVID-19, the EU acted much more efficiently, laying the foundation for the EURUSD uptrend. However, the slow vaccination in the euro area presses down the euro bulls and the EU governments. Eurosceptics go ahead, and the rise in political risks contributes to the euro fall.
Marine Le Pen appears to be almost the only serious opponent of Emmanuel Macron in France's 2022 presidential elections. Their confrontation, which ended in the victory of the current head of state, triggered the euro rally in 2017. Nobody knows what will happen this time. Nor is there any certainty that Mario Draghi will save Italy. Yes, the ex-president of the ECB is most likely the best person for the worst job. Yes, financial markets were optimistic about his willingness to manage Italy's political crisis, which is evident from a narrower yield spread between Italian and German bonds. Still, it will be complicated for anyone to bring order to the chaos in which Rome lives today.
According to Bloomberg research, the euro-area economy is currently operating at 95% of its pre-pandemic capacity due to lockdowns. This is the equivalent of losing €12 billion a week. The euro area is several weeks behind the US in vaccination. The US will soon return to full-fledged work while the eurozone will maintain existing restrictions, which will cost it € 500-1000 billion within one or two months. Thus, the vaccination campaign directly impacts the economy and allows Eurosceptics to go ahead, which puts pressure on the euro. There is a clear divergence in economic growth, which is reflected in the different rates of the US and euro-area PMIs.
I don’t think that the surge of the euro-area inflation from -0.3% to 0.9% in January will be the reason for the ECB to pull back on the pandemic emergency purchase program. The rise in consumer prices resulted from temporary factors, and the Governing Council is likely to ignore it.
The US dollar is supported by the Treasury yield growth ahead of the auctions. In the week ending Feb 14, the Treasury plans to place 3-year bills, 10-year and 30-year bonds totaling $ 126 billion. The interest rates on the securities are rising, and investors remember that the growth of Treasury yields in January resulted in the greenback strengthening.
Weekly EURUSD trading plan
The current Forex sentiment makes banks abandon bullish forecasts for the euro. Nomura exits EURUSD longs, and Deutsche Bank says the pair can go down to 1.18. It is still relevant to hold down shorts entered at level 1.208 and enter short-term sell trades at least until the EURUSD goes up above the indicated level.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-suffers-losses-forecast-as-of-04022021/?uid=285861726&cid=79634
Dynamics of Italy-Germany 10 Year Bond Spread
LiteFinance
Silver will feed the wolves of Wall Street. Forecast as of 01.02.2021
The attack on silver market tests the strength of such a phenomenon as Reddit traders. If the crowd of small traders succeeds, all the professionals will have to reckon with them. What if it doesn't? Let's discuss the market outlook and make up a trading plan.
Weekly silver fundamental forecast
January from time to time brings real shocks to financial markets, which makes people forget about politics, the economy, and even about a pandemic. At the beginning of 2015, the Swiss National Bank decided to stop spending its gold and foreign exchange reserves to hold the EURCHF bears at level 1.2. After that, the pair collapsed sharply, and the franc became the Forex best performer of the year before its end. At the start of 2020, due to the flash crash, the yen strengthened sharply, rising within a few minutes against the Australian dollar by 8%. In January 2021, it's time for Reddit newbie traders.
United in a crowd resembling a flock of animals, newbies brought hedge funds to their knees, pumping up GameStop prices by 1500%. After that, they began to be taken seriously. If earlier small traders had to look for large players' traces to earn money, now it is enough to enter the forum. Following the shares of the video game maker, silver came into the focus of the Reddit flock. As a result, the XAGUSD prices soared to 5-month highs, and the stocks of the largest ETF iShares Silver Trust grew by a record $944 million overnight.
The flock has far more options than any particular wolf on Wall Street. Professionals cannot agree to collude; otherwise, they will face a prison sentence. They incur more serious brokerage costs than small traders. The flock has other problems. A split may occur in its ranks at any time. Opinion leader Ken Griffin's calls to buy silver were initially met with enthusiasm, but then skeptics emerged. They noted that unlike GameStop, hedge funds had been net buyers of precious metals since mid-2019. Who are they going to fight against? Perhaps the flock leader, who has a lot of iShares Silver Trust shares in his portfolio, is merely pursuing his own goals of enrichment and will abandon the people following him at any moment?
In the case of GameStop, ordinary traders outplayed Wall Street professionals. However, the large traders can benefit from the attack on the silver market. Can a crowd of individual traders influence the precious metal market? The capitalization of the precious metal market ($48 billion) significantly exceeds the value of the shares of the manufacturer of video games when the securities began to soar in mid-January ($1.4 billion). The flock runs the risk of breaking teeth.
Weekly silver trading plan
In any case, the silver scam is a test of the durability of such a phenomenon as Reddit traders. If newbies manage to boost XAGUSD prices, regulators will have to get down to business. The market is already ceasing to fulfill some of its functions. The last thing we need is to turn the market into a distorting mirror. Failure can discourage newbies from becoming professional traders. However, a precedent has been set, and other forums or social networks may follow Reddit. In the meantime, the inability of silver to break out the resistance at $ 30.15-30.3 per ounce serves as a signal of the flock's mission's failure and the basis for sales.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/silver-will-feed-the-wolves-of-wall-street-forecast-as-of-01022021/?uid=285861726&cid=79634
Dynamics of hedge funds positions and other silver market participants
The attack on silver market tests the strength of such a phenomenon as Reddit traders. If the crowd of small traders succeeds, all the professionals will have to reckon with them. What if it doesn't? Let's discuss the market outlook and make up a trading plan.
Weekly silver fundamental forecast
January from time to time brings real shocks to financial markets, which makes people forget about politics, the economy, and even about a pandemic. At the beginning of 2015, the Swiss National Bank decided to stop spending its gold and foreign exchange reserves to hold the EURCHF bears at level 1.2. After that, the pair collapsed sharply, and the franc became the Forex best performer of the year before its end. At the start of 2020, due to the flash crash, the yen strengthened sharply, rising within a few minutes against the Australian dollar by 8%. In January 2021, it's time for Reddit newbie traders.
United in a crowd resembling a flock of animals, newbies brought hedge funds to their knees, pumping up GameStop prices by 1500%. After that, they began to be taken seriously. If earlier small traders had to look for large players' traces to earn money, now it is enough to enter the forum. Following the shares of the video game maker, silver came into the focus of the Reddit flock. As a result, the XAGUSD prices soared to 5-month highs, and the stocks of the largest ETF iShares Silver Trust grew by a record $944 million overnight.
The flock has far more options than any particular wolf on Wall Street. Professionals cannot agree to collude; otherwise, they will face a prison sentence. They incur more serious brokerage costs than small traders. The flock has other problems. A split may occur in its ranks at any time. Opinion leader Ken Griffin's calls to buy silver were initially met with enthusiasm, but then skeptics emerged. They noted that unlike GameStop, hedge funds had been net buyers of precious metals since mid-2019. Who are they going to fight against? Perhaps the flock leader, who has a lot of iShares Silver Trust shares in his portfolio, is merely pursuing his own goals of enrichment and will abandon the people following him at any moment?
In the case of GameStop, ordinary traders outplayed Wall Street professionals. However, the large traders can benefit from the attack on the silver market. Can a crowd of individual traders influence the precious metal market? The capitalization of the precious metal market ($48 billion) significantly exceeds the value of the shares of the manufacturer of video games when the securities began to soar in mid-January ($1.4 billion). The flock runs the risk of breaking teeth.
Weekly silver trading plan
In any case, the silver scam is a test of the durability of such a phenomenon as Reddit traders. If newbies manage to boost XAGUSD prices, regulators will have to get down to business. The market is already ceasing to fulfill some of its functions. The last thing we need is to turn the market into a distorting mirror. Failure can discourage newbies from becoming professional traders. However, a precedent has been set, and other forums or social networks may follow Reddit. In the meantime, the inability of silver to break out the resistance at $ 30.15-30.3 per ounce serves as a signal of the flock's mission's failure and the basis for sales.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/silver-will-feed-the-wolves-of-wall-street-forecast-as-of-01022021/?uid=285861726&cid=79634
Dynamics of hedge funds positions and other silver market participants
LiteFinance
Euro declares war. Forecast as of 29.01.2021
The verbal interventions of the European Central Bank could enrage Washington. And the ECB needn’t have interfered with the currency rates under the current conditions. The divergences in the economic expansion and vaccination rates press down the EURUSD. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
If the ECB is willing to discourage investors by suggesting a potential interest rate cut, it should not mention the rise of Germany’s consumer prices. In January, the German inflation has surged from 0.7% to +1.6% and is likely to push the euro-area inflation up. This fact could mean that the European Central Bank will end the pandemic emergency purchase program earlier than expected, which could have supported the EURUSD bulls. However, the euro bulls haven’t enjoyed the success for a long time.
Following the president of the central bank of the Netherlands, Klaas Knot, the Governor of the Bank of Finland, Olli Rehn says the ECB will spare no effort to stimulate the inflation growth and is monitoring the euro exchange rate. According to Commerzbank, the choice of the European regulator's information campaign means that it has declared a currency war. The Governing Council’s officials' emphasis on cutting the interest rates and ordering research, whether the weakening of the US dollar is connected with a large-scale fiscal stimulus, suggests that the ECB is worried about the current euro exchange rate rather than the speed of its strengthening.
If the Commerzbank is correct, the ECB's verbal interventions should disappoint Janet Yellen, who promised to stop other countries' attempts to artificially depreciate their currencies. Besides, the inflation rebound could mess the ECB plans. The rise of Germany’s consumer prices could have resulted from temporary factors. However, according to the ING, ECB obviously underestimates the potential inflation growth following a period of persistently low inflation. The CPI increase will worsen the dispute among the Governing Council’s members, encouraging the ECB to start monetary normalization. If so, the EURUSD trend should turn up. However, the euro bulls are now concerned about defending their positions and preventing the euro from a deeper fall.
Slow vaccination progress in Europe and the fact that the USA, unlike the euro area, won’t slide into a double-dip recession press the euro exchange rate down. In fact, the ECB is going too far: verbal interventions are not needed in the current situation, they risk provoking the White House's anger.
In 2020, the US economy contracted 3.5%, the worst since the end of World War II and the first recession since 2009. However, thanks to fiscal stimulus of $900 billion from Donald Trump and $1,900 billion from Joe Biden, the US GDP, following a weak start in 2021, should rapidly rebound in the next quarters. The IMF notes that the US economy has enormous growth potential, and the World Bank calls for winning the war on COVID-19 first and paying off debts later.
In contrast to the Americans, generously spending money, the € 750 billion European Recovery Fund, according to the ECB, will lead to a more than modest 1.5% expansion of the euro-area GDP.
Weekly EURUSD trading plan
Therefore, the economic growth gap and different paces of vaccinations in Europe and the USA will continue pressing down the EURUSD in the short run. If the price breaks out the support at 1.208, it could slide down towards 1.204, 1.199, and 1.195.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-declares-war-forecast-as-of-29012021/?uid=285861726&cid=79634
Dynamics of EURUSD and trade-weighted euro
The verbal interventions of the European Central Bank could enrage Washington. And the ECB needn’t have interfered with the currency rates under the current conditions. The divergences in the economic expansion and vaccination rates press down the EURUSD. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
If the ECB is willing to discourage investors by suggesting a potential interest rate cut, it should not mention the rise of Germany’s consumer prices. In January, the German inflation has surged from 0.7% to +1.6% and is likely to push the euro-area inflation up. This fact could mean that the European Central Bank will end the pandemic emergency purchase program earlier than expected, which could have supported the EURUSD bulls. However, the euro bulls haven’t enjoyed the success for a long time.
Following the president of the central bank of the Netherlands, Klaas Knot, the Governor of the Bank of Finland, Olli Rehn says the ECB will spare no effort to stimulate the inflation growth and is monitoring the euro exchange rate. According to Commerzbank, the choice of the European regulator's information campaign means that it has declared a currency war. The Governing Council’s officials' emphasis on cutting the interest rates and ordering research, whether the weakening of the US dollar is connected with a large-scale fiscal stimulus, suggests that the ECB is worried about the current euro exchange rate rather than the speed of its strengthening.
If the Commerzbank is correct, the ECB's verbal interventions should disappoint Janet Yellen, who promised to stop other countries' attempts to artificially depreciate their currencies. Besides, the inflation rebound could mess the ECB plans. The rise of Germany’s consumer prices could have resulted from temporary factors. However, according to the ING, ECB obviously underestimates the potential inflation growth following a period of persistently low inflation. The CPI increase will worsen the dispute among the Governing Council’s members, encouraging the ECB to start monetary normalization. If so, the EURUSD trend should turn up. However, the euro bulls are now concerned about defending their positions and preventing the euro from a deeper fall.
Slow vaccination progress in Europe and the fact that the USA, unlike the euro area, won’t slide into a double-dip recession press the euro exchange rate down. In fact, the ECB is going too far: verbal interventions are not needed in the current situation, they risk provoking the White House's anger.
In 2020, the US economy contracted 3.5%, the worst since the end of World War II and the first recession since 2009. However, thanks to fiscal stimulus of $900 billion from Donald Trump and $1,900 billion from Joe Biden, the US GDP, following a weak start in 2021, should rapidly rebound in the next quarters. The IMF notes that the US economy has enormous growth potential, and the World Bank calls for winning the war on COVID-19 first and paying off debts later.
In contrast to the Americans, generously spending money, the € 750 billion European Recovery Fund, according to the ECB, will lead to a more than modest 1.5% expansion of the euro-area GDP.
Weekly EURUSD trading plan
Therefore, the economic growth gap and different paces of vaccinations in Europe and the USA will continue pressing down the EURUSD in the short run. If the price breaks out the support at 1.208, it could slide down towards 1.204, 1.199, and 1.195.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/euro-declares-war-forecast-as-of-29012021/?uid=285861726&cid=79634
Dynamics of EURUSD and trade-weighted euro
LiteFinance
The Fed failed mission. EURUSD forecast as of 28.01.2021
To convince investors in the continuous QE, the Fed chair should have surprised them. Let us discuss the markets’ reaction to Powell’s speech and make up a EURUSD trading plan.
Weekly US dollar fundamental forecast
The economy, like viruses, mutates. Through innovation, the global economy adjusts to new conditions. The problem is that viruses mutate faster. The emergence of new COVID-19 variants in Britain, Brazil, and South Africa has seriously scared the financial markets. Can existing vaccines handle the coronavirus variants? Will humanity need another vaccination campaign? How long will it take to develop new vaccines? In addition to the vaccine supply problems, such ideas, gloomy comments by Jerome Powell, and the ECB dovish tone dropped EURUSD below the bottom of figure 21.
The euro dropped because of the ECB officials’ speeches. The European Central Bank, which, according to Bloomberg source familiar with the matter, at the meeting on January 21, decided it was necessary to shake the markets. Investors stopped pricing the possible rate cut in the financial instruments, which supported the EURUSD bulls. Christine Lagarde and her colleagues decided to resort to verbal interventions. Klaas Knot's statement that the ECB has the opportunity to lower the deposit rate from the current -0.5% made the markets remember this scenario and triggered a wave of euro sales. The president of the central bank of the Netherlands noted the Governing Council has investigated the effective lower bound for interest rates but has not yet found it. According to a recent ECB analysis, the interest rate of -1% will do the economy more harm than good
The ECB’s intention to shake financial markets is understandable. The euro-area economy has had a bad start in 2021. According to the IMF forecasts, the Eurozone's growth will recover up to the pre-crisis levels by late 2022. For comparison, the size of China's economy is already larger than in 2019, and the US growth will return to the trend in late 2021.
Unlike the European Central Bank, the Fed aimed at calming down the financial markets. After comments from individual FOMC officials, investors began to worry about a possible repeat of the 2013 taper tantrum. Has Jerome Powell reassured investors? Looking at the worst daily S&P 500 crash since October, he has failed. The Fed Chairman noted that it is too early to suggest pulling back on the QE, and the central bank will make sure to warn about slow and gradual scaling down of the asset purchases in advance. The problem is that Powell had to add a gloomy tint to the description of the US economic performance to convince investors that the central bank will not change the monetary policy for a long time. Therefore, the Fed’s post-meeting statement scared investors.
Weekly EURUSD trading plan
By and large, three divergences are supporting the EURUSD bears. They are the divergence in monetary policies (the Fed remains passive, the ECB talks about cutting rates), economic growth rates, and vaccination speed. Therefore, I expect the pair to continue correction down towards 1.204, 1.199 and 1.195. A reason to enter short-term sell trades will be a successful test of the support at 1.208.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/the-fed-failed-mission-eurusd-forecast-as-of-28012021/?uid=285861726&cid=79634
Dynamics of the market expectations for the ECB rate changes
To convince investors in the continuous QE, the Fed chair should have surprised them. Let us discuss the markets’ reaction to Powell’s speech and make up a EURUSD trading plan.
Weekly US dollar fundamental forecast
The economy, like viruses, mutates. Through innovation, the global economy adjusts to new conditions. The problem is that viruses mutate faster. The emergence of new COVID-19 variants in Britain, Brazil, and South Africa has seriously scared the financial markets. Can existing vaccines handle the coronavirus variants? Will humanity need another vaccination campaign? How long will it take to develop new vaccines? In addition to the vaccine supply problems, such ideas, gloomy comments by Jerome Powell, and the ECB dovish tone dropped EURUSD below the bottom of figure 21.
The euro dropped because of the ECB officials’ speeches. The European Central Bank, which, according to Bloomberg source familiar with the matter, at the meeting on January 21, decided it was necessary to shake the markets. Investors stopped pricing the possible rate cut in the financial instruments, which supported the EURUSD bulls. Christine Lagarde and her colleagues decided to resort to verbal interventions. Klaas Knot's statement that the ECB has the opportunity to lower the deposit rate from the current -0.5% made the markets remember this scenario and triggered a wave of euro sales. The president of the central bank of the Netherlands noted the Governing Council has investigated the effective lower bound for interest rates but has not yet found it. According to a recent ECB analysis, the interest rate of -1% will do the economy more harm than good
The ECB’s intention to shake financial markets is understandable. The euro-area economy has had a bad start in 2021. According to the IMF forecasts, the Eurozone's growth will recover up to the pre-crisis levels by late 2022. For comparison, the size of China's economy is already larger than in 2019, and the US growth will return to the trend in late 2021.
Unlike the European Central Bank, the Fed aimed at calming down the financial markets. After comments from individual FOMC officials, investors began to worry about a possible repeat of the 2013 taper tantrum. Has Jerome Powell reassured investors? Looking at the worst daily S&P 500 crash since October, he has failed. The Fed Chairman noted that it is too early to suggest pulling back on the QE, and the central bank will make sure to warn about slow and gradual scaling down of the asset purchases in advance. The problem is that Powell had to add a gloomy tint to the description of the US economic performance to convince investors that the central bank will not change the monetary policy for a long time. Therefore, the Fed’s post-meeting statement scared investors.
Weekly EURUSD trading plan
By and large, three divergences are supporting the EURUSD bears. They are the divergence in monetary policies (the Fed remains passive, the ECB talks about cutting rates), economic growth rates, and vaccination speed. Therefore, I expect the pair to continue correction down towards 1.204, 1.199 and 1.195. A reason to enter short-term sell trades will be a successful test of the support at 1.208.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/the-fed-failed-mission-eurusd-forecast-as-of-28012021/?uid=285861726&cid=79634
Dynamics of the market expectations for the ECB rate changes