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EURUSD forecast for 17.08.2020

August 17, 2020

August 17, 2020

EUR/USD forecast: Dollar is out of fashionDmitri Demidenko

Fundamental U.S. dollar forecast for today

The market is driven by emotions. If the [EUR/USD][1] bulls are taken by the euphoria, no negative economic data will hold them back! The U.S. industrial production data have exceeded the forecasts, the U.S. retail sales are back at the pre-crisis levels. In the euro-area, however, the euro-area employment has dropped the most on record since the series begun in 1995. But the euro buyers are going ahead. Investors are confident that the euro-area economy will recover, and the U.S. growth will face a recession amid the coronavirus pandemic.

BofA Merrill Lynch notes that 36% of asset managers surveyed by the bank said the U.S. dollar sell positions are their favourite trading strategy, the highest in the history of research. This strategy is much ahead of all the others, its proportion increased by 6% from 30% in July, and, most likely, it will continue to gain popularity. BofA Merrill Lynch names, among other reasons, the loss of the greenback’s position as a reserve currency. In fact, the countries that are under pressure from the USA are active participants in the process of de- dollarization. The proportion of the US currency in the trade settlements between Russia and China has been for the first time below 50%. In 2015, for example, the dollar’s share in the Russia-China trade settlements was more than 90%.

Dynamics of USD share in China-Russia trade settlements

![LiteForex: EURUSD forecast for 17.08.2020][2]

Source: Wall Street Journal

Washington tries to affect Moscow using sanctions, but it uses much more sophisticated measures concerning Beijing. President Donald Trump ordered ByteDance to divest the U.S .  operations of its app TikTok as the social media will cease to work in the USA in 90 days. A U.S. reprieve that had allowed some US companies to work with Huawei without a license now expires. The USA warns that the sanctions will target other China’s corporations, including Alibaba.

The US-China relations are getting tense, the parties even delayed the meeting planned for August 15 to assess the fulfilment of obligations under the trade agreement signed in January. The [EUR/USD][1] bulls, however, are not concerned about the trade conflict escalation. They expect that amid such a scenario the euro’s share in the global FX reserves will increase. According to 40% of asset managers polled by BofA Merrill Lynch, this process will start already in 2021.

Forex seems to be taken away by euphoria. Hedge funds’ dollar longs versus the world eight major currencies have been in the red for the first time since May 2018. The main reason is said to be speculators’ growing interest in the euro.

Dynamics of speculative dollar positions and Treasury real yields

![LiteForex: EURUSD forecast for 17.08.2020][3]

Source: Bloomberg

Of course, bulls’ enthusiasm used to quickly result in the capitulation in the past. However, under the current conditions, I mean the difficult epidemiological situation in the USA, Fed’s grim projections, and the upcoming presidential election in November, the US stock indexes are growing, and the [EUR/USD][1] can well grow as well. Amid the current situation, it is important to check buyers’ willingness to continue the rally anyway. If the resistance at 1.188 is broken out, the pair can well continue rising.

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Price chart of EURUSD in real time mode

![EUR/USD forecast: Dollar is out of fashion][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.

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