EURUSD forecast for 23.07.2020

July 23, 2020

EUR/USD forecast: Three reasons to sell U.S. dollarDmitri Demidenko

Fundamental U.S. dollar forecast for today

The USD should weaken amid global changes in the financial world

For many decades, the entire financial world has depended on the USA. The US economy has been the strongest, the US securities market has been the largest, and the US dollar has been the most demanded currency. However, the unipolar world does not support global development, it slows it down. The destruction of the old system has started with the pandemic. China’s economy is likely to outperform the US, European bonds and stocks should take the lead from the US peers, and the share of the greenback in foreign exchange reserves, international settlements, and conversion operations will decline. That is why the [EUR/USD][1] long- term outlook is bullish.

According to USB, the Chinese economy will grow by 2.5% this year. Taking into account the drop in the US GDP this year and the slow recovery expected in 2021-2022, China will be able to overtake the US by the late 2020s. It is is a very positive news bit for the export-led euro-area. Washington doesn’t like it. The US arranges trade battles, closes China’s consulate in Houston, the US says it could break diplomatic relations with China, but the process is going on, and it can’t be stopped already!

The US economic strength now looks like a bubble. All those strong data on the US retail sales and other economic indicators amid a poor reading of the US jobs data result from the US huge fiscal and monetary stimulus, which is much bigger than in other advanced economies. However, here is a fierce debate between Republicans and Democrats over the new aid package. When the money pumped by the Fed doesn’t have a direct place to apply, the US dollar is weakening.

Forecast for GDPs and fiscal stimulus

![LiteForex: EURUSD forecast for 23.07.2020][2]

Source: Wall Street Journal

The [S&P 500][3] P/E ratio is at the highest level since the dotcom crisis. At that time, the bubble burst, and it could burst now. The US treasury yield is close to its all-time low, the market is obviously overbought. However, once the interest rates start rising, the Fed will find a place for financial repression. Investors didn’t have any alternatives before, but they do now after the French-German plan has been approved.

The project is called a milestone in European history and is compared to the proposal of the first Treasury Secretary Alexander Hamilton, who offered to by the US government debts in the 18th century. The European Commission’s bonds are the obligation of the EU, not its member-states. The ECB can buy the bonds, so, there is hardly a risk of default. The market has got a reliable asset competitive with Treasuries. Besides, it has got such an attractive asset as bonds of the euro-area peripheral countries, competitive with the emerging markets’ bonds. Emerging markets have cut the interest rates by 5,500 basis points since early 2019, which makes their bonds less appealing.

Dynamics of borrowing costs

![LiteForex: EURUSD forecast for 23.07.2020][4]

Source: Bloomberg

In my opinion, the global changes in the world’s financial system, the capital outflow from the US into European markets and a less important role of the US dollar in the international settlements, global FX reserves, and conversion operations will support the [EUR/USD][1] rally to 1.18 and 1.22 in six and twelve months.

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][5]. 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][6] 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: Three reasons to sell U.S. 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.

Rate this article:

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