EURUSD forecast for 07.09.2020

September 7, 2020

EUR/USD forecast: Euro bears go aheadDmitri Demidenko

Fundamental Euro forecast for today

EUR/USD is rolling down, and Forex traders expect an apocalypse

When the FOMC officials led by Jerome Powell universally state that the US economy won’t rebound without a fresh stimulus, it sounds like an appeal to Congress, “we have done our job, now, it is your turn!” The shift to the average inflation targeting suggests that the Fed focuses on full employment more than consumer prices. However, an improvement in the US jobs market reduces the chance of the compromise between the Republicans and the Democrats on additional assistance to the unemployed. A vicious circle, which is difficult to break.

The August report was positive. The US unemployment rate dropped from 10.2% to 8.4%, and nonfarm payrolls data were better than the forecasts. Yes, the growth of employment is slowing down, but it is natural. The increase in activity after the reopening of the economy is fading away. The recession is deep; there are 11.5 million fewer jobs than in February. However, the US economy is recovering. That is why the US dollar has performed the best weekly rise since June.

The US strong domestic data are not the only reason for the [EUR/USD][1] correction. Investors wonder if the ECB will continue to press the euro down. If Christine Lagarde speaks about the harm of the strong euro at the Governing Council’s meeting, the market will expect the boost of the QE and interest rate cut. Investors now expect the ECB rate to drop by ten basis points by September 2021. The dovish tone of the European Central Bank could send European bond yield down, and so, the euro should weaken.

Dynamics of EONIA and German bond yield

![LiteForex: EURUSD forecast for 07.09.2020][2]

Source : Bloomberg

The ECB September meeting will be a test for Christine Lagarde. The hawks are likely to criticize the idea of expanding the stimulus package. However, if the ECB president says nothing about the exchange rates at the press conference following the meeting of the Governing Council, the [EUR/USD][1] buyers will go ahead. The words should be chosen very carefully because excessive pressure can only have a short- term effect, and then, the euro rally will continue.

The euro correction encourages the bears to go ahead. They suggest a grim outlook for the single European currency. For example, the EU governments may not ratify the €750 billion joint bond plan. Furthermore, some experts project a no-deal Brexit, the second pandemic wave in Europe, and even Donald Trump’s re-election, followed by the escalation of the US-EU trade war. The chance of the euro-area break is close to zero now, but it can rise. In this case, the bond yield gap will broaden, and the euro will weaken.

Dynamics of Italy-Germany 10-year yield gap

![LiteForex: EURUSD forecast for 07.09.2020][3]

Source : Bloomberg

Of course, everything can happen in Forex. However, I believe the [EUR/USD][1] should resume the uptrend after the correction. The market currently expects the ECB to sound dovish, which suggests the euro should go down below $1.18.

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Price chart of EURUSD in real time mode

![EUR/USD forecast: Euro bears go ahead][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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