EURUSD forecast for 02.09.2020

September 2, 2020

EUR/USD forecast: Euro faces somber realityDmitri Demidenko

Fundamental Euro forecast for today

Euro’s strengthening sets back European Inflation and forces the ECB

to boost QE

The Forex is a paradox! The EU governments agreed on the massive fiscal stimulus, and the euro versus the US dollar has been 12% up from the lows hit in March. The lack of agreement in the Governing Council should send the [EUR/USD][1] up to 1.25 in 2021. The ECB cannot afford to follow the Fed’s example and target the average inflation as the hawks oppose it. After all, it about the future. The euro is rolling down now after the ECB’s verbal intervention, the first in a long time.

ECB chief economist Philip Lane says the euro-dollar exchange rate is significant. It affects the global and the euro-area outlook projected by the ECB, thus determining the ECB monetary policy. Earlier, Lane claimed that the next stage in overcoming the shock would be inflation stimulation. The Governing Council was going to stimulate inflation in case of necessity. In August, the euro area faces deflation for the first time in the past four years; naturally, the central bankers discuss the expansion of the QE.

Dynamics of euro-area inflation

![LiteForex: EURUSD forecast for 02.09.2020][2]

Source : Bloomberg

The consumer prices were 0.2% down; core inflation hit a record low of 0.4% amid several factors. The energy prices are lower than in 2019, the VAT in Germany was reduced, and discounting during summer sales in France, Italy, and Belgium. Deflation is in 12 countries of the 19-nation euro area. Considering a drop in employment and the slower wages growth, the ECB faces serious problems.

However, the Governing Council’s hawks do not panic. Executive Board member Isabel Schnabel says that incoming data don’t suggest a need for further monetary easing. Furthermore, the impact of the euro’s exchange rate on inflation is not clear, which is proven by the ECB research. Germany’s government predicts a 5.8% contraction of the GDP, compared to 6.3% suggested earlier. The German GDP is expected to rebound in 2021 amid several positive factors. The lockdowns are relaxed, the COVID-19 vaccines are tested, there are fiscal stimulus packages, China’s economy is recovering fast.

So, the principle “buy on rumors, sell on facts” has worked out in this case. Just yesterday, I noted that some Forex analysts expected that Germany’s GDP outlook should be revised up. Besides, the ECB’s verbal interventions and a strong reading of the US manufacturing PMI encouraged the [EUR/USD][1] bears to go ahead.

Dynamics of global manufacturing PMIs

![LiteForex: EURUSD forecast for 02.09.2020][3]

Source : Wall Street Journal

I believe that the opposition of the hawks and doves won’t allow the ECB to follow the Fed’s path in the average inflation targeting. It will support the euro’s uptrend. In the meanwhile, I must admit that the upward movement of the [EUR/USD][1] has been overstretched. According to Bloomberg’s research based on the options market bets, the [EUR/USD][1] can either go up to 1.25 or drop to 1.15 with equal chances. The euro’s uptrend needs a correction. The correction will go on if the price breaks out the support zone of 1.1865-1.1875.

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Price chart of EURUSD in real time mode

![EUR/USD forecast: Euro faces somber reality][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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