US dollar price forecast September 21 2020

2020-09-21

What will stop the euro? Forecast for 21.09.20Dmitri Demidenko

Middle-term fundamental analysis. Money is going to Europe. Isn’t it too early?

Following a short correction, the [EURUSD][1] pair is about to resume the uptrend. The euro bulls are going ahead. I suggest monitoring the market and offer a [EURUSD][1] trading plan for this week.

Fundamental euro forecast for this week

If you can’t go on holiday abroad, you can buy a new laptop. The pandemic has transformed international trade from a brake on the global economy into a key driver of its growth. In 2019, due to Donald Trump’s protectionism, the volume of trade between countries was shrinking, which slowed down the global GDP. In 2020, the export-led regions, which were the outsiders, have become the leaders, as well as their local currencies. Over the past 6 months, the [EURUSD][1] pair has been 6.5% up, also because of the international trade growth. The exports share in the euro-area GDP is more than 40%. In the USA, exports account for less than 20% of the GDP.

According to Markit’s research, new export orders were growing in 14 of 38 economies, compared with just four in June. The Kiel Institute for the World Economy says trade world-wide is rebounding much more quickly this year than it did after the previous global crisis. The export-led economies, including China, South Korea, and Germany, perform better than others. The pandemic has made China a particularly successful one, whose share in global exports jumped to 18% in April and then dropped slightly in July to 15.9%. This fact has been one of the reasons for the yuan strengthening. A rise in the yuan’s values usually means the euro growth as well.

Dynamics of the yuan and the euro

Source : Trading Economics

In addition to the global trade rebound, the [EURUSD][1] bulls are supported by portfolio investments. Because of the huge fiscal stimulus in the US, the volume of deposits of the population in commercial banks increased sharply. Commercial banks do not want to increase the volume of lending amid the high probability of bankruptcy. So, where one should invest? In bonds! Since the end of February, their volume on balance sheets has increased by $ 250 billion, which has pressed down the Treasury yields and weakened the US dollar. The USD index has lost about 5% in the June-September period, and the current quarter is going to be the worst one for the dollar since 2010.

Dynamics of the USD

Source : Bloomberg

The process could accelerate amid the portfolio rebalancing at the end of the quarter. At this time, asset managers often close the positions on the rapidly growing securities reinvesting the funds into lagging equities. It could result in the growing demand for the underperforming share markets of Australia and the UK, sending up the AUD and the GBP versus the USD.

Therefore, international trade and investment capitals support the [EURUSD][1] bulls but bears also have some benefits. If exports become the key driver of the economic rebound, the ECB must be willing to restrain the euro appreciation. The number of COVID-19 cases in France has reached its highest level since the start of the pandemic, and the UK is considering another lockdown. And so, European currencies may not continue rallying up.

[EURUSD][1] trading plan for this week

The second pandemic wave and the ECB willingness to set back the euro bulls increase the risk of the [EURUSD][1] middle-term consolidation in the range of 1.17-1.2. The breakout of the resistances at 1.188 and 1.191 may send the euro up close to $1.2. However, I don’t recommend buying and holding the pair for too long.

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Price chart of EURUSD in real time mode

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