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EURUSD forecast for 21.05.2020

May 21, 2020

May 21, 2020

Dollar has no rivalsDmitri Demidenko

People buy the US dollar because other people do the same

Some people may have been encouraged to buy the euro after Germany and France had offered a €500-billion fund to help countries suffered from the pandemic. However, the [EUR/USD][1] steady rally requires efforts from both sides. Investors need to be confident when the right time to sell the US dollar comes. But could they have now what they have expected for years? Market players haven’t been discouraged from having the greenback in their portfolios by the expansion of the Fed’s balance sheet, the growth of the US public debt, or by the huge US foreign trade deficit. The dollar is like a global language or social media. People use it because other people do the same. People learn English for international communications or visit Facebook for the same purposes.

Although the US GDP is falling dramatically, the share of the greenback in conversion, payment, and trading operations has not changed much. Central banks still hold about 60% of their FX reserves in US dollars. One of the reasons for the dollar popularity is the absence of alternatives. Neither the euro nor the Chinese yuan nor the Bitcoin can be real competitors to the US dollar. Therefore, investors are focused on the Fed’s policies as the dollar plays a dominant role in the global financial system. Much depends on the FOMC decisions and not only in the USA.

Dynamics of the US share in the global GDP

![LiteForex: EURUSD forecast for 21.05.2020][2]

Source: Bloomberg

The minutes of the Fed’s April meeting have somehow discouraged the [EUR/USD][1] aggressive buyers. The central bank seriously considered the possibility of following the Japanese experience of the yield curve control. The strategy involves keeping debt rates at a certain level. Besides, the BoJ does not require as many resources as it was expected when the QE was launched. This means that the Fed’s balance won’t be expanded so fast in this case. It is a positive factor for the US dollar. The Federal Reserve has already cut the daily pace of bond purchases to $6 billion, from $75 billion per day at the peak of market shocks. Besides, the net asset purchases for the G7 central banks were above $1.3 trillion in April, which should be the record amount of money injected in the global bond market for a long time.

Dynamics of asset purchases by central banks

![LiteForex: EURUSD forecast for 21.05.2020][3]

Source: Bloomberg

The [EUR/USD][1] bears have been also encouraged by the growing tension in the US-China trade relations. The Senate overwhelmingly approved legislation that suggests the audit of the Chinese companies, whose shares are traded on the US stock exchanges. Earlier, some Chinese corporations didn’t allow the US auditors to carry out the investigation. Now, these companies could be barred from listing on the US stock exchanges.

Nonetheless, just a few days ago, Donald Trump said that, if the Chinese companies are delisted from the New York Stock Exchange, they will move to London, Frankfurt, or Tokyo. This is a reasonable message of the US president. Unlike his tweet, where Trump claims China will do anything to stop his re-election as the US President. After that, China could continue treating the US unfairly. The [EUR/USD][1] bulls stepped back, but they can go ahead again as long as the pair is above the support at 1.09.

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Price chart of EURUSD in real time mode

![Dollar has no rivals][6]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. cdn.liteforex.com/cache/uploads/blog_post/eurusd/usa-global-gdp-21-05-20.jpg?w=30&s=368780c16b0cebf0d7ed35de076d95cf
  3. cdn.liteforex.com/cache/uploads/blog_post/eurusd/qe-central-banks-21-05-20.jpg?w=30&s=bc69cf1afaaf5887e2fe3e5abfc0bf92
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  6. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-21-05-20.jpg?q=75&w=1000&s=5a2b211c78982a067eb5de2b2bd39e90