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EURUSD forecast for 18.08.2020

August 18, 2020

August 18, 2020

EUR/USD forecast: Will euro have reason for correction?Dmitri Demidenko

Fundamental Euro forecast for today ****

The market has never been more bullish on the EUR/USD

The higher is trading the euro, and the more are there talks about a correction. Rabobank believes the move in the [EUR/USD][1] is overstretched, based on the CFTC data and the vacation period and the number of holidays in August. A little later, the pair may encounter a sharp drawdown. According to Barclays, bitter negotiations for a new coronavirus stimulus deal between Democrats and Republicans make investors less willing to risk than earlier, which supports the US dollar as a safe haven. Once the parties reach an agreement, the greenback will resume the downtrend.

According to the CFTC data, assets managers increased their long euro position to a fresh high in the week to August 11. The euro net long positions are $30 billion. Goldman Sachs notes that hedge funds hold net longs on the euro versus the dollar for the first time since 2018. Excessive speculative longs increase the risks of a correction amid profit-taking. However, there should be a reason for a drawdown, a news bit that will make investors exist long trades. There is not any yet, and the [EUR/USD][1] continues to rally.

Dynamics of euro positions held by asset managers

![LiteForex: EURUSD forecast for 18.08.2020][2]

Source : Financial Times

The Institute of International Finance notes the CFTC data show “deep infatuation” with the idea the dollar will be falling and the euro will be growing. Positioning data changed from ‘extremely’ to ‘stupendously’. According to JP Morgan, the process of portfolio diversification by financial managers has been far from being finished, and the FX reserves managers are especially active. This fact allowed the bank to raise its forecasts for the [EUR/USD][1] from 1.13 to 1.2 at the end of 2020.

Barclays analysts say the stalled talks between the Democrats and the Republicans on the fiscal stimulus plan increase the dollar demand as a safe haven. I agree with this idea. I believe the more extended the negotiations are, the weaker the US GDP will be in the short-term and middle-term outlook. The growth gap between the US and the euro-area is the main driver for the euro strengthening against the US dollar. According to Moody’s Analytics, unless the Congress adopts a fresh stimulus before September, the US economy will be vulnerable to anything that goes wrong. Taking into account the COVID-19 pandemic, much could go wrong.

Therefore, the market, in my opinion, is too bullish on the euro. Positive factors, such as leading growth of the euro-area GDP over the US and the diversification of investment portfolios and FX reserves in favor of the euro and euro-denominated assets, continue working. Besides, a dead-end in the negotiations on the US stimulus package and a worse epidemiological situation in the US than in Europe increase concerns about a poor reading of the US economic data shortly. [EUR/USD][1] buyers are going to break out the resistance levels at 1.19-1.191. If they succeed, the pair can well hit 1.196 and 1.199. Will the minutes of the Fed’s July meeting discourage them?

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Price chart of EURUSD in real time mode

![EUR/USD forecast: Will euro have reason for correction?][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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  5. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-18-08-20.jpg?q=75&w=1000&s=f45cf1f51ec6c5b8d567219b4548949c