US dollar price forecast 3 November 2020

2020-11-03

Dollar fell into liquidity trap. Forecast as of 03.11.2020Dmitri Demidenko

The monetary expansion may not work because of huge volumes of cheap liquidity. So, the euro might have fallen too deep amid the ECB’s hints at the QE expansion. Let us discuss it and make up a [EURUSD][1] trading plan.

Weekly US dollar fundamental forecast

39 out of 60 experts polled by Reuters believe that the US presidential election is to be the strongest driver for the US dollar over the next few weeks. Almost 70% of the experts say that the dollar shorts should remain the same or increase. According to Standard Chartered, the USD rise at the end of October must be used to enter sell trades as the traders tend to get rid of the dollars. The consensus forecast suggests the [EURUSD][1] rally towards 1.18 and 1.21 in 1 and 12 months. However, the majority is not always right.

The euro drawdown results from a new wave of COVID-19 in Europe, lockdowns, and concerns about a double-dip recession. Furthermore, the ECB is to expand monetary stimulus, and the political situation in the USA remains uncertain. After the US election is over, the factor of uncertainty will cease supporting the [EURUSD][1] bears, unless Donald Trump rejects the vote results, of course. The second pandemic wave is a strong factor. However, the most recent reports on the euro-area manufacturing PMI signal that the economy adjusts to the pandemic. Italy’s and Spain’s PMI data are better than expected, Germany’s economy in one of the best performers. The lockdowns in France and Germany should not last long.

Dynamics of manufacturing PMIs

Source : Wall Street Journal

The ECB’s suggested expansion of the QE and interest rate cut in December could have weakened the euro far stronger in usual conditions. The [EURUSD][1] drop under the current unusual conditions doesn’t look natural. Since the pandemic started, the world’s central banks provided monetary stimulus worth $12 trillion, 97% of the advanced economies lowered the interest rates below 1%. In a fifth of the entire world, the interest rates are negative, QE will surprise no one, but inflation does not grow. The global economy got in the liquidity trap, the monetary expansion doesn’t work, and the risk of currency wars increases. The ECB’s willingness to boost the stimulus might be just a verbal intervention. If so, the euro has fallen too deep.

The euro can resume the uptrend, especially since investors are confident in Joe Biden’s victory. However, the drop in the stock and bond markets ahead of the election signals that most investors hold cash, and they should invest this money somewhere.

Dynamics of ratings of Trump and Biden

Source : Financial Times

Weekly [EURUSD][1] trading plan

Where will investors put the money in? First of all, in Asia. The US assets are also quite appealing. Almost a 6% drop in the [S&P 500][2] at the end of October encourages investors to buy stocks. They also consider buying Treasuries, as the US Treasury has lowered its forecast for issuing government bonds from $1.2 trillion to $617 billion. If so, the Fed could monetary normalization sooner than in the case of Trump’s victory. If Biden wins, the [EURUSD][1] is likely to rise towards 1.17 and 1.1735. However, if the [S&P 500][2] falls amid the absence of a ‘blue wave,’ the euro will also fall.

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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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