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US dollar price forecast October 8 2020

2020-10-08

2020-10-08

Dollar corrects the error. Forecast 08.10.2020Dmitri Demidenko

Cutting off talks with Democrats to expand fiscal stimulus could be a serious political mistake resulting in Trump’s loss and the dollar’s drop. Let us discuss this issue and make up a [EURUSD][1] trading plan

** Weekly US dollar fundamental forecast**

While Donald Trump is making every effort to raise his approval rating, sometimes making inadequate decisions, the Fed and the ECB continue currency wars. Christine Lagarde says an early termination of monetary support may result in a deep recession of the euro-area economy so that monetary stimulus will continue for a long time. Federal Reserve Bank of Chicago President Charles Evans says the Fed can take more action. The US central bank can boost bond purchases or focus the QE on longer- maturity bonds. Talks about monetary easing are a bearish factor for a currency. So, the speeches of the central banks’ officials sound like currency interventions. Investors, however, worry about different issues.

Focused on the fight between the candidates within the presidential campaign, investors pay little attention to the FOMC September meeting minutes. The Fed explains it will not raise the federal funds rate until the following conditions are met. The labor market must meet the goals of full employment; inflation should be at least 2%. Finally, the forecast or the market indicators should suggest that the PCE will moderately exceed 2% over a period of time. The Federal Reserve in September increases the gauges of the key economic indicators, but it was made with the consideration of an additional fiscal stimulus, which hasn’t yet been provided.

Donald Trump tried to mitigate the negative from his announcement to end negotiations with Democrats by calling for Congress to allocate $ 25 billion to the aviation industry to fight mass layoffs. House Speaker Nancy Pelosi called this an attempt to correct a political mistake made the day before and recalled that Republicans refused to accept a similar proposal from the Democrats a couple of weeks ago. Political disputes fuel market turmoil. However, the talks about partial stimulus send the [S&P 500][2] up.

The current situation is similar to what happened in spring when the risk appetite determined Forex trends, and the [EURUSD][1] was rather responsive to the US stock indexes.

Dynamics of S &P 500 and EURUSD

Source : Trading Economics

Investors consider what is better, Joe Biden’s corporate tax hike and a bigger fiscal stimulus or Donald Trump’s income tax cut and a less bailout. This first option is more beneficial in the middle-term. The stimulus will soon exhaust while tightening the fiscal policies is a long-term factor.

Weekly [EURUSD][1] trading plan

Trump’s tweets shocked financial markets; however, investors expect the Democrats to win the November elections. This fact, in addition to the confidence that the Fed will maintain the ultra-easy monetary policy, must stop the [S&P 500][2] sell-offs. If so, the [EURUSD][1] correction will hardly be deep. Nonetheless, the storm hasn’t ended yet. There could just be a wider trading range of 1.166-1.188.

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