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EURUSD forecast for 08.09.2020

September 8, 2020

September 8, 2020

EUR/USD forecast: Euro is close to painDmitri Demidenko

Fundamental Euro forecast for today

The EUR/USD uptrend may cause problems to the euro area

How far will the ECB go? The [EUR/USD][1] correction down signals that investors expect the central bank to weigh on the euro exchange rate at its September meeting. However, Forex analysts suggest that ECB power is limited. The euro rally mostly results from the weakness of the US dollar. Although some members of the Governing Council believe that the euro is strengthening because of the robust growth of the euro-area economy, the majority believes that the Fed’s is cheating on other regulators. The Fed’s shift to the average inflation targeting must weaken the greenback.

The euro area must pay for the best euro rally since 2014. It should result in the inflation downturn, weigh on the euro-area exports, and worsen the financial performance. According to Legal&General Investment Management, a 10% strengthening of the currency reduces the profits of European companies by 3%, American ones - by 2%. The euro-area is close to pain. If the euro trade-weighted exchange rate is at the same level as now, it is not very bad. If it goes higher, it will become a big problem.

**Dynamics of the euro versus the currencies of the euro-area trade

partners**

![LiteForex: EURUSD forecast for 08.09.2020][2]

Source : Wall Street Journal

What could the ECB do? The interest rate cut down form the current 0.5% will hit the bank system. A boost in the QE will hardly be any good to the economy amid the current ample liquidity in the market. The members of the Governing Council note that the asset purchase program is efficient during the market turmoil, but then, it seems to be useless. Is it a verbal intervention? The effect of the speech lasts for a day or two. After that, the market again focuses on monetary policy. So, if Christine Lagarde tries to press the euro down, she will hardly succeed. Moreover, if the ECB president speaks about such topics, other central- bankers could follow her example. Not only central banks may resort to the verbal interventions, but also Donald Trump, who already has had such experience.

Trump is preparing for the presidential election. He claims that the US economy experiences “the fastest recovery in US history”. He promises to impose taxes on the US companies that move their production lines outside the US and sell the products to the Americans. Donald Trump raises the prospect of “decoupling” the US economy from China. Trump has also said the US would hold China accountable for the devastation wrought by the coronavirus pandemic. The US president is also tracking the US stock indexes. Here, he might be right. Since 1928, when the [S&P 500][3] is positive in the three months before the US presidential election, incumbent presidents, or candidates from the controlling party, have won nearly 90% of elections.

In August, the US stock market was 7% up, however, September is historically one of the worst months for the [S&P 500][3]. The stock index was down in 54% of cases by 0.96% on average. In the years of the presidential election, the index was 0.3% down in September. This month is also weak for the bulls. If the US stock market continues declining, the EUR/USD will also run down. Ahead of the ECB meeting, the pair may start consolidation. However, if the [EUR/USD][1] breaks out the support levels at 1.178 and 1.176, it will be likely to drop to figure 17 bottom.

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Price chart of EURUSD in real time mode

![EUR/USD forecast: Euro is close to pain][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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