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Forecast for EURUSD for 29 July 2020

July 29, 2020

July 29, 2020

Forecast for EUR/USD: Dollar breaks the mouldDmitri Demidenko

Fundamental forecast for dollar for today

Every recession has its own trick

Crises are the moments of breaking memory patterns. The current economic recession provoked by the pandemic is no exception. Take the [Dollar smile theory][1], for example. According to it, the greenback grows on a bigger demand for safe haven assets, falls on the Fed’s large monetary stimuli and rises again on expectations of the US GDP’s better performance versus its peers. July may become the worst month for the USD index in the past decade, even more so because something went wrong at the last stage. The mould is broken. The divergence in economic growths is favourable to [EUR/USD][2] bulls.

Investors inevitably turn back to past experience: the 2007-2009 global economic crisis, the Great Depression of 1930, the 1918 flu pandemic. The previous recession is still fresh in our minds, so the Fed reacted naturally with a large monetary stimulus. Financial markets thought of the central bank’s 2008 success, put on rose-coloured glasses and believed it was time to buy risks. Now  S&P 500 is concerned about what will happen to the economy and corporate benefits in Q3. The stocks have been outrunning themselves for a long time. The question is whether they have got too high.

Crises do break memory patterns, but there is a moment when a new consensus opinion of risk premiums is reached as investors react to a new global picture. I suppose the French-German fiscal stimulus project was that kind of a moment. Before the pandemic, Europe had been considered as the world’s main economic brake.  Fiscal consolidation programs, Brexit, EU-scepticism, rumours of EU disintegration and, finally, the export-oriented region’s distress caused by the US-China trade wars urged speculators to sell the euro actively. The pandemic turned everything upside down, which is clearly seen in the forward market.

Dynamics of speculative positions in euro

![LiteForex: Forecast for EURUSD for 29 July 2020][3]

Source: Wall Street Journal.

The single European currency  isn’t led by American stock indexes any longer. What’s more, it is ready to withstand an eventual sell-out in the US stock market. International investors will move money from America to Europe because of [S&P 500][4]’s correction. Meanwhile, the dollar’s status of the world’s reserve currency will be undermined - this is what Goldman Sachs is trumpeting. GS believes that growing inflation and excessive government debt are the main reasons for the USD losing predominance in Fx transactions (88%) and gold reserves (62%).

According to the Goldman analysts, at the initial stage of recession Wall Street didn’t dare to say the Fed’s monetary stimulus would speed up PCE and CPI because they had already made a similar erroneous forecast in 2007-2009.  However, investors’ are changing their minds. Inflation expectations are growing by leaps and bounds,  real US bond yields are falling and the dollar is growing weaker. If the Fed shows tolerance of consumer prices growth at July’s meeting, a breakout of resistance levels at 1.1765 and 1.178 will allow [EUR/USD][2] to continue the rally.

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Price chart of EURUSD in real time mode

![Forecast for EUR/USD: Dollar breaks the mould][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. www.liteforex.com/blog/for-professionals/dollar-smile-theory/
  2. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  3. cdn.liteforex.com/cache/uploads/blog_post/eurusd/euro-cftc-29-07-20.jpg?w=30&s=86f16ee080ca3eadc3b588fcb63a27bd
  4. my.liteforex.com/trading/chart?symbol=SPX&returnUrl=true
  5. my.liteforex.com/?category=analysts-opinions&slug=forecast-for-eurusd-dollar-breaks-the-mould&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
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  7. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-29-07-20.jpg?q=75&w=1000&s=3e423a3b27d145d056a5476bf7802ee0