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US dollar price forecast October 5 2020

2020-10-05

2020-10-05

Dollar enjoys uncertainty. Forecast as of 05.10.2020Dmitri Demidenko

Investors discuss the issues associated with the health of the US president. The uncertainty is rising, which strengthens the greenback. Will the dollar rally last long? I will try to answer and offer a [EURUSD][1] trading plan.

Monthly US dollar fundamental forecast

The US jobs report for September is weak. But does it matter if Donald Trump is infected with COVID-19? The illness of the US president increases uncertainty. What is the president’s true state of health? Will he really be discharged already on October 5? Or the fact that he was given oxygen and medication for seriously ill patients suggests the US president is really sick? Is the disease a political trick? When Boris Johnson was infected with the coronavirus, his approval rating increased amid the general sympathy. Finally, could Trump have infected Joe Biden during the debate?

The disease of the US president and the associated surge of uncertainty send the US stock indexes down. If Trump misses the presidential campaign, the chance of the Democrats’ victory in the election will rise. Joe Biden’s promise to raise the taxes presses down the US stock market. Investors are confident in [S&P 500][2] the crash following the victory of the Democratic candidate. In my opinion, this bet could be wrong. Increased infrastructure spending and a better chance of congressional approval of additional aid packages will benefit the economy and the stock indices. Trump is going to continue trade wars, which often pressed the US equities down in 2018-2019.

I believe the [S&P 500][2] won’t crash anyway. As a result, the demand for the US dollar should soon weaken. The greenback benefits from the uncertainty now. Once the turmoil eases, investors will sell off the dollar. The USD long-term outlook is still bearish. In the 1970s and 1980s, the USD index fell by 33% in real terms, in 2002-2011 - by another 28%. During those periods, the current account deficit was -2.5% of GDP, compared to the current value of -3.5% of GDP. Considering a sharp decline in the net national saving rate, the US will have to use foreign loans to maintain economic growth, which should increase the US foreign trade deficit and weaken the US dollar.

Dynamics of US current account, % of GDP

Source : Financial Times

According to the OECD forecasts, the global economy will expand by 5% in 2021, following a 4.5% contraction in 2020. If the COVID-19 vaccines’ introduction goes faster than planned, the global growth rate could increase to 7%. The higher is the global GDP, the stronger is the risk appetite, which encourages the [EURUSD][1] bulls.

Yes, the US dollar will remain strong as a safe haven amid several factors in the short run. They are the uncertainty around the US presidential election, the first since 2016 deflation in the euro area for two consecutive months, which raises the chance of the European QE expansion, and the second pandemic wave. But what will be next, in a few months?

Monthly [EURUSD][1] trading plan

I believe you should build your Forex strategy according to your trading style. If you are a long-term investor, willing to hold positions for a long time, you should add up to the longs when the [EURUSD][1] goes down below 1.17. If you are a short-term trader, it makes sense to sell now.

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Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

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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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  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. my.liteforex.com/trading/chart?symbol=SPX&returnUrl=true
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