Forecast for euro price for 30 October 2020

2020-10-30

Euro: practice makes perfect. Analysis as of 30.10.2020Dmitri Demidenko

Christine Lagarde’s dovish rhetoric only speeded up the euro’s collapse. Investors are worried the S&P 500 and [EURUSD][1] may fall again like it was in March. Let’s discuss that and make a trading plan.

Monthly fundamental forecast for the euro

Fear is ruling the market and history repeats itself. These two principles explain the best the [EURUSD][1]’s fall in four consecutive trading sessions. The pair’s quotes dropped to two-month lows, while their collapse on 29 October became the worst since 21 September. Investors may blame good statistics on the US’ Q3 GDP and the ECB’s hints about a monetary stimulus expansion. However, we know the market has expected that, and therefore, we need to find some other reasons.

Never before has the European Central bank expressed its intention to soften monetary policy so clearly. At a press conference, Christine Lagarde said that the Executive Board would undoubtedly approve of a new stimulus in December since the second wave and lockdown threatened the EU economy with a double recession. The GDP’s recovery isn’t as fast as expected and monetary policy should therefore be corrected. The ECB took action during the first coronavirus wave, and it will do so during the second one.

The hint is transparent. The forward market is pointing to the ECB’s rate cut. However, all this was predictable: both the €500 billion QE extension in December and the pandemic’s negative impact on the economy’s recovery. At the same time, a softer monetary policy won’t be a relief in the circumstances where banks phase out crediting amid growing bad debt. According to Citigroup’s research, the European bank will buy up €460 billion in bonds in 2021, which will be more than the eurozone’s net asset issuance value of €405 billion. Investors’ fight for bonds will be harsh, which will raise demand for the euro and boost the [EURUSD][1]’s growth.

Bond issuance and ECB buyouts

Source: Financial Times.

The US’ Q3 GDP grew 33.1%, hence the euro’s fall suspension. The upbeat statistics slowed down stock indexes’ slump for a while. Thus, the [S&P 500][2] didn’t update its September’s low and the [EURUSD][1]’s bulls got an advantage.

Investors are much concerned about a record-high increase in new Covid cases in the USA and severe restrictions in Germany, France, and other European countries. They don’t exclude the US stock market’s collapse, similar to March’s. On the one hand, fear grows as the eurozone’s switched faster to a new lockdown and hence a chance of fewer losses. On the other hand, this fact allows counting on the EURUSD’s recovery like it was in July-August.

COVID-19 cases in the USA

Source: Bloomberg.

Monthly trading plan for [ EURUSD][1]

Thus, the market forgot about the US election and focused on the pandemic. If the [S&P 500][2] manages to correct, the [EURUSD][1]’s fall to 1.155 and 1.14 should be bought up. On the contrary, the euro will claw back losses faster if US stock market bulls manage to counter- attack amid Joe Biden’s victory and vaccine news. However, the euro’s fans need to bring quotes back above 1.173 first.

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Price chart of EURUSD in real time mode

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