Euro price forecast October 16 2020

2020-10-16

Euro is rolling down. Forecast as of 16.10.2020Dmitri Demidenko

The EURUSD is being corrected down amid several negative factors. They are growing political risks in the USA, the second pandemic wave in Europe, and the high risk of a no-deal Brexit. Let us discuss how bad the situation is and male up a [EURUSD][1] trading plan.

Weekly euro fundamental forecast

The [EURUSD][1] is down to its two-week low for several reasons. The US stock indexes have been trading down for three consecutive days; additional restrictions are introduced in Paris and London because of COVID-19. Besides, the EU officials announce that agreeing a “fair” new partnership with Britain was “worth every effort” but that the bloc would not compromise at any cost, which sends the pound down. The euro bulls are trying to consolidate the price at the bottom of figure 17, betting on China’s rebound and the ECB’s unwillingness to boost the monetary stimulus before December.

China has attracted $6 billion in the dollar-backed obligations, which repeats the record of 2019. According to the median forecast of the financial analysts polled by the Wall Street Journal, China’s GDP will grow by 5.3% Y-o-Y in the third-quarter report, which is much higher than in the April-June period (+3.2%) and close to the data recorded in 2019 (6.1%). The foreign demand for Chinese securities and the optimism about economic rebound allowed the yuan to compensate for most losses resulted from PBoC’s FX interventions. These facts support the euro.

The euro bulls are also encouraged by the ECB’s unwillingness to expand the monetary stimulus at its October meeting. Despite a sharp downturn of the euro-area economy amid the second pandemic waves, the ECB officials believe there is no need yet to ease the monetary policy. According to the head of the Bank of Holland, Klaas Knot, the regulator needs additional information. The ECB Vice-President Luis de Guindos believes that since less than half of the money in the QE framework has been spent, there is no need to boost asset purchases.

ECB monetary stimulus spending

Source : Bloomberg

The euro is supported by the fact that China’s economy is growing, and the ECB is unlikely to take active measures. However, the dollar demand increases amid the political uncertainty in the US associated with a lower global risk appetite, which sets the [EURUSD][1] bulls back.

The number of Americans filing for unemployment benefits rose by 898 thousand in the week ended October 10th, proving the US labor market needs an additional fiscal stimulus. A poor reading has sent the [S&P 500][2] down and strengthened the greenback. Investors still bet on the Democrats’ victory on November 3. However, they are not willing to buy US stocks now, as they remember how Hillary Clinton, who was leading in the ratings, eventually lost to Donald Trump. If the US stock indices continue falling, the market situation will be similar to that of 2017. At that time, the ECB, discontent with the euro strengthening, used verbal interventions, and the pair failed to consolidate above 1.2.

Dynamics of EURUSD in 2017 and 2020

Source : Nordea Markets

Weekly [EURUSD][1] trading plan

Remarkably, the EURUSD trend depends on the pound now. The UK is discontent with the EU’s willingness to prepare for a no-deal Brexit can drop the [GBPUSD][3] deeper and send the euro towards $1.159-$1.162. I suggest one continue holding down the [EURUSD][1] shorts entered at level 1.178.

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Price chart of EURUSD in real time mode

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