US dollar price forecast September 22 2020

2020-09-22

Dollar should float free. Forecast for 22.09.2020Dmitri Demidenko

Donald Trump tried to weaken the greenback, but everything turned different. I analyze the [EURUSD][1] market situation and offer a trading plan.

Fundamental US dollar forecast for today

When the White House is losing a currency war without even taking part in it. The second pandemic wave in Europe weakens the euro. The USA stock indices are down, increasing the demand for safe havens. The Fed members fail to reach an agreement on further monetary policy. So, the [EURUSD][1] bulls are set back. The major currency pair has had the worst daily drop for the month, having approaches the bottom of the middle-term consolidation range 1.17-1.2.

Donald Trump asked officials to adjust the exchange rate of the dollar to counteract what he described as repeated currency manipulation by China of its yuan. He was rebuffed. “Sir, we can’t do that. It has to float naturally.” It is a surprise, isn’t it? Such a speech would make sense if the [USDCNH][2] was growing, but it is falling. Furthermore, an unwise verbal intervention should strengthen the greenback, which has ultimately happened. The US president must have wanted to draw attention. Amid the dovish tone of the ECB, such a speech naturally sent the [EURUSD][1] down. Christine Lagarde strongly rejects that the European Central Bank has exhausted its monetary tools. At the same time, the regulator is closely monitoring the strengthening of the euro and its impact on inflation.

Dynamics of euro-area inflation

Source : Bloomberg

Lagarde believes that the economic recovery in the eurozone is incomplete and uneven. She seems to be right, especially since the second pandemic wave could set the rebound back. The second lockdown would an economic suicide. However, the UK is considering a lockdown amid the potential growth of new COVID-19 cases to 50,000 per day by mid-October. According to the Telegraph, Boris Johnson is to urge companies to work remotely. Travel restrictions are imposed in Madrid and the surrounding area. In this region, the number of confirmed coronavirus cases reaches 690 per 100,000 people. For comparison, in the UK, there are 71 new cases, in Germany - 26.

Dynamics of coronavirus cases in the USA and Spain

Source : Trading Economics

The talks about a new lockdown in the UK triggered selloffs in the global stock markets. 10 out of 11 [S&P 500][3] sectors closed down amid the concerns that the global GDP rebound would be W-shaped. The CBOE volatility index has soared to the highest level over the past few weeks. The VIX must continue rising not only because of the uncertainty around the US presidential election but also because of the disputes among the Fed’s members. Jerome Powell persistently urges Congress to expand the fiscal stimulus package. The St. Louis Federal Reserve President James Bullard, however, believes that the economy can do without additional assistance.

[EURUSD][1] trading plan today

According to the Exchange Bank of Canada, unless the Fed chairman, during his two-day speech, to US lawmakers, or other FOMC officials, give more clues on the new average inflation targeting policy, the US dollar should further strengthen. I think it shouldn’t occur until the [EURUSD][1] breaks out the support at 1.17-1.171

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Price chart of EURUSD in real time mode

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