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Euro price forecast October 13 2020

2020-10-13

2020-10-13

Will euro catch a ‘blue wave’? Forecast as of 13.10.2020Dmitri Demidenko

The support from Asia is replaced by the resistance, which discourages the euro bulls. Let us discuss the euro prospects and make up a [EURUSD][1] trading plan.

Fundamental euro forecast today

The country determines the currency. The export-led euro area depends on foreign demand, as it often compensates for the domestic deficit. The euro-area GDP is rising when the global economy is strong or is recovering after a crisis. The same is true for the euro. While the foreign drivers support the [EURUSD][1] bulls, like the US stock indexes and the Chinese yuan, the single European currency is strengthening. Once the support weakens, there come the euro-area domestic negative factors.

Despite a steady rise of the [S&P 500][2], the [USDCNH][3] correction has set the euro buyers back. The PBoC has made a step towards the yuan weakening. The Chinese central bank canceled a 20% reserve requirement for banks buying foreign exchange for their clients through forward contracts. It makes it easier to sell renminbi. The last time when the PBoC took such actions was in September 2017; the USDCNH was up about 2.5% in the next three weeks.

Beijing is concerned about yuan growth. Before the reserve requirements were canceled, the yuan had been up to an eighteen-month high against the US dollar. According to Goldman Sachs, if there is the so-called ‘blue wave,’ which means Democrats’ control of the White House and Congress, the USDCNH will drop to 6.5. I think the yuan strengthening is an objective process. The divergence in the USA and China’s economic expansion and monetary policy support the inflow of foreign capitals in China. The yield gap between Chinese bonds and Treasuries has widened to all-time highs. The capitalization of the Shanghai Composite exceeded $10 trillion for the first time since 2015; it has increased by $3.3 trillion from the March low.

The euro follows the yuan. The growth of the Chinese GDP supports the euro-area economy. The second wave of COVID-19 in Europe increases the risks of lockdowns. The UK could withdraw from the EU without a deal. Besides, the ECB resorts to verbal interventions and suggests further monetary easing. The euro has enough flaws, but they have been so far compensated with the foreign factors, the rallies of the [S&P 500][2] and the renminbi.

Dynamics of euro and Chinese yuan

Source : Trading Economics

What’s next? I believe the yuan and the US stock indexes will soar if Joe Biden wins, which will support the [EURUSD][1] bulls. Nonetheless, the export-led euro-area economy will remain weak without the widespread introduction of vaccines and the associated acceleration of global GDP growth. In this scenario, the ECB will stay dovish, creating strong barriers to the euro’s growth.

[EURUSD][1] trading plan today

Of course, foreign support is good for the euro, but the euro-area economy is still weak. The [EURUSD][1] should be consolidating in the range of 1.16-1.2. In the short run, one could try to sell the pair at the breakout of the support at 1.178, or buy is the resistance at 1.183 is successfully tested.

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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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