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EURUSD forecast for 03.09.2020

September 3, 2020

September 3, 2020

EUR/USD forecast: Euro is trapped in the illusionDmitri Demidenko

Fundamental Euro forecast for today

The real situation is far from what we think it to be

Technical analysis says the price chart considers all the factors. However, the market gets trapped in the illusion from time to time. The growth gap between the US and the EU economies, which has been driving the [EUR/USD][1] up, could be a fiction. According to Deutsche Bank, the EU financial aid package may lead will create thousands of “zombie companies”, and Europe could lose competitiveness against the US. A slight increase in European unemployment and public debt could also be a fiction.

At the peak of the economic recession, the US unemployment surged from 3.5% to almost 15%, while the euro-area unemployment rate was up from 7.2% to 7.9%. It is associated with the impact of the fiscal stimulus on the labor market. In the United States, assistance is provided to the unemployed, in Europe, they are trying to save jobs. The euro area is quite good at managing the symptoms of the disease, but it very slowly adapts to a normal state.

Another fantasy is the insignificant growth of the national debt of the eurozone countries in comparison with the US peer. According to the Congressional Budget Office, the US debt-to-GDP ratio will increase from 98.2% to 104.4%. in 2020⁄2021. In Europe, the EU plan the EU’s plan to issue common bonds for $ 750 billion creates the illusion of a slight increase in public debt because the obligations will not be included in the government debt of any country in the eurozone.

Therefore, the real situation is far from what we believe in. Does it mean the euro will drop to $1.1? No, it doesn’t. We all live in the illusion, not only financial markets. Forex analysts expect the situation of 2017 to repeat. Then, the [EUR/USD][1], after a drop from level 1.2 associated with the inability to overcome the options barrier, soared to 1.25 in the next five months. History repeats itself, doesn’t it?

Dynamics of EUR/USD

![LiteForex: EURUSD forecast for 03.09.2020][2]

Source : Bloomberg

The current market state has a lot in common with the events that occurred six years ago. The [EUR/USD][1] rally started from below 1.1, the price chart drew a shooting star pattern in the daily chart, which signals a correction. Despite a drawdown, the euro risk reversals are still up, which means the uptrend is likely to resume.

However, the market is now impressed by Philip Lane’s verbal interventions. People familiar with the matter told Financial Times that other members of the Governing Council share the viewpoint of the ECB chief economist. One council member said that the euro’s appreciation is worrisome, as the euro area is the most open economy in the world and unusually dependent on global demand. Another council member believes that, as the US Federal Reserve shifted to a more dovish average inflation target, investors may interpret interest rates as being structurally higher in the euro area, which could lead to a further rise of the [EUR/USD][1].

In my opinion, as the ECB meeting on September 10 approaches, there should be more talks that the ECB is interested in the euro’s depreciation. In addition to a strong reading of the US jobs report for August, this fact may send the euro down towards $1.176 and $1.173.

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Price chart of EURUSD in real time mode

![EUR/USD forecast: Euro is trapped in the illusion][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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