EURUSD forecast for 04.09.2020

September 4, 2020

EUR/USD forecast: Euro is rolling in moneyDmitri Demidenko

Fundamental Euro forecast for today

A boost in European QE is more likely to weaken the euro than to

support the banking system

You can lead a horse to water, but you can’t make him drink. Experts surveyed by Bloomberg expect the ECB to increase the emergency asset purchase program by €350 billion by the end of 2020, and the volume of other programs by another € 220 billion. However, the euro-area banking system doesn’t need extra liquidity. There is already too much liquidity, and lending institutions are willing to pay to give the excess money for temporary use to their colleagues from other banks. Under such conditions, the expansion of the QE is more a means to weaken the euro than a way to support thew euro-area economy. It looks like a currency war.

According to the UBS research, European credit institutions hold €2.9 trillion more than they need for reserve requirements. It is also because the ECB has provided € 1.3 trillion in loans through the LTRO since June. At the same time, the central bank has nearly €1.6 trillion in outstanding loans. The overnight rate falls to a record low of -0.557 in the interbank market, which, according to ING, is paralyzed by the ECB actions. Nobody needs liquidity .

Dynamics of excess liquidity

![LiteForex: EURUSD forecast for 04.09.2020][1]

Source : Wall Street Journal

The lower is the interbank lending rate for overnight funds in the euro- area, the more pressure will be put on the euro. The analysts, polled by Bloomberg, suggest Christine Lagarde should signal a boost in the ECB QE at the Governing Council meeting on September 10. It will be a bearish factor for the [EUR/USD][2].

Dynamics of the ECB stimulating programs

![LiteForex: EURUSD forecast for 04.09.2020][3]

Source: Bloomberg

Such actions of the European regulator could be interpreted as a currency war, and Washington could retaliate. However, the Fed was the first to start the average inflation targeting. According to more than 80 experts surveyed by Reuters, the factor of the Fed’s holding the interest rate close to zero is the primary growth driver for the [EUR/USD][2]. Other advantages of the euro, according to the poll, are the EU fiscal stimulus and the leading growth of the euro-area economy compared to the US. Analysts see the [EUR/USD][2] at 1.21 in twelve months.

The euro is also supported by the willingness of the French government to expand the fiscal assistance to the economy by €100 billion. Besides, there is a gap in the economic performance of the North and the South, which increases the risk of disputes among the Governing Council’s members. For example, the retail sales in Germany, France, and the Netherlands have already reached pre-crisis levels, while, in Spain, Portugal, and Greece, the indicator is much lower. A similar gap is in the PMI data.

After all, investors are now focused on the US jobs report. The US employment, according to the experts surveyed by Reuters, increased by 1.4 million in August, following a rise of 1.76 in July and of 4.79 in June. If the actual data exceed the forecasts, the [EUR/USD][2] could slide down below 1.18. If the report is weaker than expected, the euro can well surge above $1.19.

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Price chart of EURUSD in real time mode

![EUR/USD forecast: Euro is rolling in money][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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