Forecast for EURUSD for 28 July 2020

July 28, 2020

Forecast for EUR/USD: Will dollar correct?Dmitri Demidenko

Fundamental forecast for dollar for today

EUR/USD bears think a major part of negative information is factored

in the quotes

The States’ inability to put an end to the pandemic may lead to the USD’s worst dynamics in the past 9 years. Not only gold has grown against the greenback in July, reaching a new record value. Almost everything has grown against the greenback. An increasing number of new Covid cases lets us think that controlling the virus in the USA is harder than in other countries. It cuts the efficiency of the US economy.

The main factors in the USD’s weakness are a bad epidemiological situation, China’s probable sales of US Treasuries, presidential election uncertainty, and fears that the Fed will continue monetary expansion and drop the federal funds rate below zero. It will hardly happen at FOMC’s meeting on 28-29 July, but obviously, the situation has changed for the worst since the last meeting.

Back in June, the number of Covid cases got stable. It was falling in New York and New Jersey, while Texas, Florida and California didn’t face the virus terror that they are in now. Still, the Fed’s forecast had already been pessimistic. Jerome Powell and his peers didn’t see any signs of the V-shape recovery the White House had been talking about. They rather appealed for fiscal stimulus and said the Central bank wasn’t able to deal alone with the pandemic. the Boston Fed President Eric Rosengren said in his latest interviews that he expected the same inflationary decline as in Europe, but the States weren’t as successful. American macro-indicators are still far from pre-crisis levels while the German Ifo Business Climate Index has exceeded them already.

Dynamics of German business climate indexes

![LiteForex: Forecast for EURUSD for 28 July 2020][1]

Source: Bloomberg.

The longer the epidemic lasts, the harder it will be for some sectors to recover. Millions of Americans will become jobless, businesses will go bankrupt and the banking system will be under a great stress. The economy is becoming less efficient, compared with competitors. This cannot but affect the currency rate. In the week ended 22 July, net USD shorts reached the highest level against 8 major currencies since April 2018.

The uncertainty around fiscal stimulus puts pressure on the greenback too. The Republicans proposed to increase the relief package by $1 trillion, cutting weekly unemployment benefits from $600 to $200. They believe the US has one foot in the pandemic and one foot in the recovery.

Still, no trend can do without correction. According to Rabobank, [EUR/USD][2] quotes have already considered both the probable worsening of US macro-statistics and the Fed’s downbeat expectations for GDP. The greenback may be given preference as a safe haven currency at any time, especially when US stock indexes aren’t willing to continue a rally. And that’s good for bulls! Retracements to $1.1655 and $1.158 will allow them to buy the euro cheaper.

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Price chart of EURUSD in real time mode

![Forecast for EUR/USD: Will dollar correct?][5]

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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