US dollar price forecast September 24 2020

2020-09-24

Euro is throwing the ballast. Forecast for 24.09.2020Dmitri Demidenko

The euro-area PMI data encourage speculators to exit euro longs. The idea of the growth gap between the euro area and the USA has exhausted. What if it isn’t so? Forex analytics and [EURUSD][1] trading plan

Fundamental euro forecast for the month

The market s are going where the investment ideas suggest. For example, Warren Buffett buys Japanese retailer stocks. So, the Asian region should be recovering faster than other advanced economies. Besides, the Japanese domestic demand will be strong also because of the population aging. Among the acquaintances of this investment genius, there is not a single day trader. If you are not one of those who Buffett shakes hands with, you can hardly consider yourself successful in the financial markets.

The primary investment idea driving the [EURUSD][1] up throughout the summer was the divergence in the economic growth of the Eurozone and the United States. The euro-area GDP recovery seemed to be going on faster than the US growth amid several factors. They are the improvement of the epidemiological situation in the euro area, the €750-billion recovery fund created by the EU governments, the growth of the global risk appetite, which was signaled by the rally of the global stock indices. In autumn, the euro’s key investment idea has exhausted. Speculators have been exiting short positions on the US dollar, and the [EURUSD][1] is being corrected down.

Yes, the COVID-19 situation in the USA is still tense, but the economy seems to have adapted to the pandemic. The Markit US Composite PMI came in above 54 in August and September. In the Eurozone, economic performance has declined. The second pandemic wave sent the euro-area PMI down from 51.9 to 50.1. Services PMI dipped below 50, which means the sector is contracting.

Dynamics of euro-area PMIs

Source : Bloomberg

The weakness of the PMI signals that although the initial rebound in GDP was more substantial than expected, this is not the best reference for long-term trading. Further economic recovery will depend on the COVID-19 situation, and it is now quite difficult in the euro-area.

On the other hand, the euro-area can be proud of the European recover fund, which ECB urges the EU to make permanent. According to the central bank, Croatia, Bulgaria, and Greece will benefit most from grants. Among the net beneficiaries are Portugal, which will expand GDP by 5.4%, Spain (+ 3.4%), and Italy (+ 1.9%) because of the stimulus.

The impact of the European recovery fund on the EU economies

Source : Financial Times

The USA can’t count on permanent financial support. Fed officials are urging Congress to increase the fiscal stimulus, but Democrats and Republicans do not find common ground on the issue. As a result, the worst-case scenario for the US economy could be the lack of additional assistance, the chaotic management of the virus, and the second wave of COVID-19.

[EURUSD][1] trading plan for the month

In my opinion, we should be optimistic and believe in a soon victory over the coronavirus pandemic. In this case, the idea of the growth gap between the US and the euro area will be back in the financial markets. If so, it will be relevant to open long-term [EURUSD][1] buy positions on the price fall to 1.158-1.161 and 1.149-1.152.

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Price chart of EURUSD in real time mode

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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