EURUSD forecast for 10.07.2020

July 10, 2020

EUR/USD forecast: Dollar is grasping at strawsDmitri Demidenko

Fundamental US dollar forecast for today

The growth in the number of COVID-19 cases in the USA sets back the

EUR/USD uptrend

The EU governments used to be accused of inefficient management, but the pandemic changed everything. The success of European medical services, quick actions to provide monetary and fiscal stimulus, and Germany’s willingness to take responsibility for poorer euro-area states have encouraged the EUR/USD bulls to go ahead. The euro risk reversals are growing as the epidemiological situation in the USA, unlike that in the euro area, is deteriorating, and the local rises of the US dollar are used to sell the greenback off. According to Bloomberg’s option probability calculator, based on the options market pricing, the [EUR/USD][1] is more likely to trade above 1.15 in a week’s time than to drop below 1.12.

Dynamics the ratio of U.S. versus Germany COVID-19 cases and the

euro risk reversals

![LiteForex: EURUSD forecast for 10.07.2020][2]

Source: Bloomberg

The median gauge of the Wall Street 11 biggest banks also suggest the eurodollar should be at 1.15 by the end of 2020. BofA Merrill Lynch suggests the most bearish forecast, saying the [EUR/USD][1] should be down to 1.05. They say the Fed will hardly boost its balance sheet significantly, while the ECB will continue easing its monetary policy. According to 64% of Bloomberg experts, Christine Lagarde and her colleagues will boost the ECB’s QE program by €400-€600 billion by the end of the year. However, I believe it is not very wise to bet solely on the divergence in views from policymakers in the U.S. and EU. Markets are likely to be more influenced by the trade wars or the COVID-19 news, than the decisions on monetary policies.

Investors should take into account different factors and build their own trading strategies based on the strongest drivers. In 2018-2019, the determining forex pricing factor was the US-China trade war, in 2020, it is the coronavirus pandemic and economic lockdowns. With this regard, a better epidemiological situation in Europe suggests a quicker rebound of the euro-area economy, which should support the growing demand for European assets. The liquidity is flowing out of the US, and so, the greenback is weakening.

One shouldn’t be confused by the growth of Citigroup’s US Economic Surprise Index. The US positive economic data under current conditions are like fast food. It looks appealing but it is bad for your health.

The euro is also supported by the yuan that is growing in value now. The matter is not only in the market important for the Eurozone. When investors are willing to buy anything but for the US assets, the greenback’s rivals are growing in price.

Dynamics of euro and yuan

![LiteForex: EURUSD forecast for 10.07.2020][3]

Source: Bloomberg.

The drop of the USD/CNY has resulted from both a quick recovery of the Chinese economy and the weakness of the world’s major currencies weighed on by the huge fiscal stimulus. The yuan positively responds to the growth of the approval ratings of democratic presidential candidate Joe Biden, whose policy is likely to be less aggressive than that of Donald Trump.

Of course, one should not fully give up on the US dollar as a safe haven amid the growth in the number of coronavirus cases in the USA. However, the middle-term and long-term outlook of the greenback is bearish. Therefore, one should use the drop of the [EUR/USD][1] to the bottom of the trading range of 1.11-1.14, I suggested [earlier][4], to add to the long positions.

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Price chart of EURUSD in real time mode

![EUR/USD forecast: Dollar is grasping at straws][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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