EURUSD forecast for 14.07.2020

July 14, 2020

EUR/USD forecast: Dollar lost the fearDmitri Demidenko

Fundamental US dollar forecast for today

What was the benefit of the USD index yesterday can become its flaw

tomorrow

What is good for the entire world is bad for the US dollar. The pandemic is still the major growth driver of the greenback. The US stock indexes are weighed on by the difficult epidemiological situation in the U.S. and the news that California cancels plans to open economy. It supports the demand for safe havens and so, the dollar remains strong. However, based on the assumption that COVID-19 will be defeated, the long-term prospects for the US dollar look gloomy.

During the turmoil, investors buy out safe havens. However, once the markets calm down, the safe havens lose their appeal. The balance of the Fed’s foreign exchange swaps with other central banks, designed to provide them with the dollar liquidity, dropped to $153 billion from $449 billion in late May. Global stock indexes have stabilized, nobody needs the greenback any more.

Dynamics of the balance of the Fed’s foreign exchange swaps

![LiteForex: EURUSD forecast for 14.07.2020][1]

Source: Financial Times

Having cut the interest rates to 0%-0.25%, the Fed returned the US dollar the status of the main safe haven, which strengthened the greenback when investors were guided by fear. However, when the global GDP started to recover from the recession, yesterday’s benefit turns into a flaw. The dollar has lost such a growth driver as high government bond yields, which sets back the capital inflow into the US. Foreign investors become more interested in China’s assets than in US securities. Foreign investors bought $619 billion of Chinese government bonds in the second quarter, it is the highest amount on record.

And the US desperately needs money! The U.S. budget deficit reached $3 trillion in the 12 months through June. The Congressional Budget Office expects it will be $ 3.7 billion this fiscal year. Besides, another round of emergency spending, suggested by the White House, will increase the US budget deficit, as well as the issuance volumes. How can they raise resources if foreign investors are increasingly buying bonds issued by the Chinese government?

In addition to the drop in the demand for safe havens and dollar liquidity, low Treasury yields, and problems with raising capital, the greenback is weighed on by growing Joe Biden’s approval ratings and concerns about a decline in the US domestic data. It is expected that the Democratic president will not attack Beijing so much and write provocative tweets as Donald Trump does. Remember, the US-China trade war was one of the major dollar’s growth drivers in 2018-2019.

Therefore, there are quite many long-term negative factors affecting the US dollar, that is why its one-year risk reversals are down.

Dynamics of USD risk reversals

![LiteForex: EURUSD forecast for 14.07.2020][2]

Source: Bloomberg

In the short run, the greenback is supported by the pandemic, and the euro is weighed on by the uncertainty around the outcomes of the ECB meeting and the EU summit, as well as the upcoming report on the Chinese GDP. The current [EUR/USD][3] consolidation in the narrow range of 1.125-1.14 is quite natural. Investors do not want to take important decisions ahead of the release of the important information in the week through July 17. We shall also wait and see.

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

I recommend trying to trade with a reliable broker [here][4]. The system allows you to trade by yourself or copy successful traders from all across the globe.
Use my promo-code BLOG for getting deposit bonus 50% on LiteForex platform. Just enter this code in the appropriate field while [depositing][5] your trading account.
Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders

Price chart of EURUSD in real time mode

![EUR/USD forecast: Dollar lost the fear][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.

Rate this article:

( {{count}} {{title}} )