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Euro price forecast October 14 2020

2020-10-14

2020-10-14

Dollar is getting high on politics. Forecast as of 14.10.2020Dmitri Demidenko

Political uncertainty after November 3 will support safe-havens, including the US dollar. Let us discuss the forex outlook and make up a [EURUSD][1] trading plan.

Fundamental US dollar forecast today

The optimism about the ‘blue wave’ prospects in the US, when democrats take control of the White House and Congress and boost the US fiscal stimulus, is gradually being replaced by skepticism. The Republicans may not lose the majority in the Senate. If so, the disputes about the financial aid package could continue after November 3. Does it make sense to buy stocks? The [S&P 500][2] has dropped. The People’s Bank of China is willing to weaken the yuan. Speculators are existing record euro longs. Under the above conditions, the [EURUSD][1] fell below the support 1.178 [earlier indicated][3].

The bets on Joe Biden’s victory are bets against the US dollar. However, this fact alone is not enough. If Democrats fail to control the Congress, the Republicans will oppose the new president just like their opponents did in 2017 when Donald Trump tried to carry out the tax and the medical reforms. Or like it was in 2020 when the White House offers a stimulus package, and the House rejects it. After the US election is over, continuous political uncertainty should support safe-havens, including the US dollar.

Investors wonder what will be after November 3. I don’t think the bet on the growing gap between the US and the euro-area economies should stop working soon. According to San Francisco Fed president Mary C. Daly, the US economy is strong and should withstand a new storm. At the same time, investor confidence in Germany’s GDP rebound has fallen to the lowest level over the past five months. The number of COVID-19 cases in Germany has reached 6500, the highest value since April’s peak.

Dynamics of Germany’s economic sentiment

Source : Bloomberg

The expectations are also pressed down by the International Monetary Fund. The IMF has revised the US GDP forecast for 2020 up to -4.3%, from the previous gauge of 8%. The forecast for the euro-area economy has been raised from -10.2% to -8.3%. According to the IMF, the global GDP will contract this year not by 5.2%, projected in June, but by 4.4%. The recession has been mitigated by huge stimulus packages provided by the world’s central banks and governments and the rebound of China’s economy. According to the IMF, China’s economy has already reached the level of 2019 and will exceed it by 1.9 at the end of 2020. In 2021, the Chinese GDP should reach 8.2%.

GDP forecasts

Source : Financial Times

Investors also doubt that the Fed’s monetary expansion is more aggressive than that of the ECB. According to Bloomberg’s research, the European Central Bank is buying more assets within the QE than needed to cover the euro-area budget deficit. So, the ECB monetary expansion seems to be more aggressive than the Fed’s.

Budget deficit and QE, % of GDP

Source : Bloomberg

[EURUSD][1] trading plan today

So, the bet on the divergence in the economic expansion and monetary policy may not work after the US presidential election. Speculators are exiting the euro longs, and the [EURUSD][1] is going down towards 1.1715 and 1.1625. Hold down short trades entered at [level 1.178][3].

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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
  3. www.liteforex.com/blog/analysts-opinions/will-euro-catch-a-blue-wave-forecast-as-of-13102020/
  4. my.liteforex.com/?category=analysts-opinions&slug=dollar-is-getting-high-on-politics-forecast-as-of-14102020&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
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