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EURUSD forecast for 11.06.2020

June 11, 2020

June 11, 2020

Fed doesn’t want a weaker dollarDmitri Demidenko

Jerome Powell’s dovish tone hasn’t supported the EUR/USD rally

The US strong jobs report for May should have encouraged the Fed to demonstrate confidence in a soon rebound of the US economy after the shock resulting from the pandemic. However, Jerome Powell did what he should. The Fed’s chair didn’t make the mistake of the former central bank’s presidents. During the Great Depression, the Fed did not provide an extra stimulus, which resulted in the W-shaped economic recovery. During the previous recession, the central bank suggested normalizing the balance sheet too early, which send the S&P 500 28% down in March 2009, following its surge by 24% in January up from the low hit in November.

“We’re not thinking about raising rates, we’re not even thinking about thinking about raising rates”. All FOMC officials believe that the federal funds rate will remain at level 0%-0.25% through the end of 2021. 15 out of 17 members believe interest rates to remain at zero through 2022. The Fed’s projections emphasize that the US economy will take a long time to recover. The US GDP should contract by 6.5% in 2020, it will increase by 5% in 2021. The unemployment rate will be 5.5% in 2020, inflation – 1.7%, which is lower than the pre-crisis indicators. The Fed seems to believe that the US economic recovery will be slow, similar to the Nike logo when the downturn is first followed by a short bounce back, however, then comes a long period of the economy moving towards a trend.

Remarkably, the same is suggested by the OECD. It says most people see a V-shaped recovery but it is going to stop halfway. The OECD suggests the global economy will be 6% down in 2020, the US growth will contract by 7.3%, the euro-area economy will contract by 9.1%. Nonetheless, in 2021, the US GDP will expand by 4.1%, the euro-area growth will be 6.5% up.

Dynamics of global GDP

![LiteForex: EURUSD forecast for 11.06.2020][1]

Source: Financial Times

GDP projections

![LiteForex: EURUSD forecast for 11.06.2020][2]

Source: Financial Times

I believe that, just as the S&P 500 is growing on expectations of improved corporate earnings in the future, the [EUR/USD][3] rally should continue due to the growth-gap between the euro area and the USA next year. Jerome Powell could have fueled the situation and weigh on the dollar if he had announced the Treasury yield control policy, but he didn’t. The Fed decided to fix the monthly volume of Treasury purchases and mortgage bonds at the levels of $80 billion and $40 billion. Its interference in the debt market is gradually fading away. In late March, the central bank was buying assets at a weekly pace of $375 billion, in late April, it bought $50 billion per week, and in early June, the central bank purchased $20 billion. The Fed probably believes that a fixed volume of purchases will be enough to stop the increase in the Treasury yields.

In general, The Fed has done what it should. Suggesting rather gloomy projections, it left the door open for the further expansion of the monetary stimulus. That is what financial markets need now. Unless there are no strong shocks, like the second wave of COVID-19 or a new round of trade wars, the S&P 500 may break through its all-time high already this year. If so, the [EUR/USD][3] can well meet my [December forecast][4], suggesting the pair be at 1.14 and 1.16 in the middle and at the end of 2020. It is still relevant to buy the euro on the corrections down.

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Price chart of EURUSD in real time mode

![Fed doesn’t want a weaker dollar][7]

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. cdn.liteforex.com/cache/uploads/blog_post/eurusd/global-real-gbp-11-06-20.jpg?w=30&s=fd6845fb7ad0c4b9c766d1b964970b98
  2. cdn.liteforex.com/cache/uploads/blog_post/eurusd/forecast-gbp-11-06-20.jpg?w=30&s=a363515af53eb4a79542379e8aa72b91
  3. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  4. www.liteforex.com/blog/analysts-opinions/forex—2020-forecasts-and-outlook/
  5. my.liteforex.com/?category=analysts-opinions&slug=fed-doesnt-want-a-weaker-dollar&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
  6. my.liteforex.com/deposit/?category=analysts-opinions&slug=fed-doesnt-want-a-weaker-dollar&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus
  7. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-11-06-20.jpg?q=75&w=1000&s=3242a8631863cb42f0eb26b5b63df3ed