US dollar price forecast 2 November 2020

2020-11-02

Dollar caught a fish in dark waters. Forecast for 02.11.2020Dmitri Demidenko

The primary risk associated with the US presidential election is a possible election-related dispute. Furthermore, there are divergences in monetary policy and economic performance. So, the [EURUSD][1] is expectedly down. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly US dollar fundamental forecast

October has become the worst month for the US stock market since March. The bond market has experienced the worst drop since September 2018. In the last week of October, the [S&P 500][2] sank 5.6%, while the Treasury yield rose to 0.858%. According to Bespoke Investment Group, this has only been 17 times since 1962, when the US Treasury yields rose along with the stock indexes’ drop. Investors believe that Joe Biden’s victory will result in the fiscal stimulus boost provided that the Democrats take control over the Senate. If it doesn’t happen, the extra stimulus package will hardly be accepted by Congress. Is it better to buy currencies, selling stocks and bonds?

The [S&P 500][2] bulls hope for a “blue wave.” However, it doesn’t guarantee that the stock index will resume the uptrend. In 2016, the Wall Street experts predicted the US stock market to fall in case of Donald Trump’s victory. At first, everything was going on as expected, but the stock indexes quickly recovered afterward. A wrong forecast cost George Soros $1 billion. And not only him.

Nobody wants to repeat the same mistakes, especially since the [S&P 500][2] could continue correction, no matter who wins. The main source of uncertainty is Donald Trump’s willingness to challenge election results. As of October 31, nearly 90 million Americans already have cast their ballots, which is over 65% of the total votes from 2016. Donald accuses the Democrats of election fraud.

Uncertainty makes investors buy safe-haven assets. However, when the Treasuries are being sold off, investors tend to buy the US dollar. Besides, the growing yield-gap between U.S. and German government bonds sends the [EURUSD][1] down as well.

Dynamics of U.S.-Germany 10-year yield gap

Source : Bloomberg

Investors are selling the euro off amid the increase in the number of COVID-19 cases in Europe and the introduction of new restrictions by the euro-area governments. Although the euro-area economy grew by 12.7% and outperformed the U.S. growth in the third quarter, everything can radically change in the fourth quarter. The median estimate of 18 Financial Times experts suggests that the euro-area GDP will contract by 2.3% in October-December. At the same time, Oxford Economics predicts that the United States will expand by 3% over the same period. Divergence in economic growth sends the [EURUSD][1] down. Furthermore, there is also a divergence in monetary policies.

Dynamics of GDP

Source : Wall Street Journal

The ECB is willing to boost the monetary stimulus in December. 59% of analysts surveyed by Bloomberg believe that the Fed, on the contrary, won’t expand the assets purchases until the end of 2021. Working directly with the Federal Reserve, large banks do not expect any QE changes until the middle of next year.

Weekly [EURUSD][1] trading plan

Under such conditions, the [EURUSD][1] is likely to continue falling towards 1.16 and 1.154-1.156. The absence of the “blue wave” and/or Donald Trump’s rejection of the election results will suggest a deeper correction down.

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

I recommend trying to trade with a reliable broker [here][3]. The system allows you to trade by yourself or copy successful traders from all across the globe.
Use my promo-code BLOG for getting deposit bonus 50% on LiteForex platform. Just enter this code in the appropriate field while [depositing][4] your trading account.
Telegram chat for traders: . We are sharing the signals and trading experience
Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders

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.

Rate this article:

( {{count}} {{title}} )