Euro price forecast October 9 2020

2020-10-09

Euro uncovered the ECB tricks. Forecast as of 09.10.2020Dmitri Demidenko

The dovish tone of the ECB meeting’s minutes didn’t stop the EURUSD bulls. Forex is focused on the US presidential election, following the [S&P 500][1] trend. Let us discuss the market situation and make up a [EURUSD][2] trading plan.

Weekly euro fundamental forecast

Looking at minutes of the ECB September meeting, I see the central banks’ officials as magicians able to shock the markets with verbal interventions, boosting QE, or an interest-rate cut. According to Christine Lagarde, the regulator can do anything amid the pandemic to set the [EURUSD][2] bulls back. The euro crashed following the minute’s release, but it rapidly went up. The market is not impressed by the ECB’s tricks; investors consider other matters.

The Governing Council noted that considering the euro-area economy’s openness, the further strengthening of the euro would hinder the GDP recovery and inflation growth. The ECB is concerned by the speed of the euro’s growth rather than its current exchange rate. The euro’s rally partially weakened the effect of the monetary stimulus, which significantly affect consumer-price pressures. The euro-area inflation expectations are very low and could further decline.

Dynamics of trade-weighted euro and EURUSD

Source : Bloomberg

Dynamics of inflation and inflation expectations in the euro area

Source : Bloomberg

The ECB position is clear, and the central bank must be aiming at sending the [EURUSD][2] down. However, the market is focused on the US presidential election. The major currency pair is following the [S&P 500][1]. The stock market is rising amid the growing rating of Joe Biden, I believe, rather than with the hope for a fresh fiscal stimulus before November 3.

Donald Trump has again changed his mind. He says he shut down the talks two days ago because they weren’t working out, and now, they are starting to work out. They are discussing airlines and some other issues. It is about a bigger deal than airlines. If the US president hadn’t made a step forward, the House speaker Nancy Pelosi would have ruled out the possibility of moving forward in helping the aviation industry without broad agreement between Republicans and Democrats.

Investors are still focused on the fiscal stimulus, and it is natural. The Fed’s tools are limited. According to Dallas Federal Reserve President Robert Kaplan, Long-term interest rates are already low. Trying to push them down further by adding to the $120 billion in bonds, the Fed is already purchasing each month, would do little to help the real economy. The primary dealers in Wall Street have the same opinion. According to a Reuters survey, they forecast a decline in bond purchases monthly pace to $84 billion and $25 in the second half of 2021 and 2022, respectively.

Weekly[EURUSD][2] trading plan

In theory, the Fed should start monetary normalization, which will support the US dollar. Nonetheless, the share of Wall Street Journal experts who expect t that the US labor market will not return to full employment before 2023 increased to 57%. It suggests the Fed will hold ultra-low interest rates for a long time, being a bearish factor for the greenback. In the short run, if the [EURUSD][2] breaks out the resistance zone of 1.178-1.179, it could rise up to 1.1865 and 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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