US dollar price forecast October 2 2020

2020-10-02

Dollar gets a test for COVID-19. Forecast as of 02.10.2020Dmitri Demidenko

The political uncertainty in the US could significantly increase as Donald Trump tests positive for coronavirus. What about the greenback? I will cover the latest news and offer a [EURUSD][1] trading plan.

Weekly fundamental US dollar forecast

Investors used to believe that the oil trend will change if the Crown Prince of Saudi Arabia sneezes. Nowadays, the US dollar trend depends on the US president’s health. Markets were shocked as Donald Trump said he would quarantine after one of the president’s closest aides tested positive for the coronavirus. Donald Trump is also COVID-19 positive, the uncertainty is being fueled.

Donald Trump’s illness could add benefits to his opponent. Joe Biden charges the US administration with poor management of the pandemic. There have been seven million of coronavirus cases in the US, 200,000 of them died. The COVID-19 situation in the US doesn’t improve. Moreover, a cold snap can provoke a second wave. Besides, the lack of additional assistance from Congress reduces the population’s incomes, and an increase in the number of layoffs and bankruptcies hinders the labor market recovery.

Dynamics of personal incomes in USA

Source : Bloomberg

Whoever wins the US presidential election, he will get a very weak economy, whose recovery is slowing down partially because of the absence of an additional fiscal stimulus. The House of Representatives passed the $2.2-trillion draft package offered by the Democrats. However, there is hardly a chance the Senate will approve it. The US growth is sliding down amid the political matters, and the dollar benefits as a safe-haven asset.

What about the euro? Amid the COVID-19 situation’s deterioration, the euro-area manufacturing PMI has surprisingly increased from 51.7 to 53.7 in September! However, the majority of this expansion was provided by Germany, which benefits from the growing Chinese PMI.

Dynamics of PMIs

Source : Wall Street Journal

The economic recovery is going on much slower in the South of Europe. According to the ECB official, Pablo Hernández de Cos, the central bank must maintain a substantial monetary stimulus until sustained recovery is achieved. The QE size could be boosted in case of necessity, and the central bank could also start average inflation targeting policy. I believe the ECB officials, including Christine Lagarde, spend too much effort to press down the euro. However, the Fed’s willingness to hold the low interest rates for a long time didn’t crash the US dollar. In the modern world, doctors and finance ministers play a more important role than bankers.

Weekly[EURUSD][1] trading plan

The balance of powers in the major currency pair is clear. In the long run, the euro will be rising. In the medium term, the [EURUSD][1] is likely to be corrected down amid the increase in political uncertainty. In the short run, the euro-dollar has been stuck in the consolidation [range of 1.161-1.177][2]; it could go beyond it after the US jobs report. Nonetheless, I wouldn’t enter trades on the channel breakout. Weak employment data could send down the US stock indexes, which will support the greenback growth.

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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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