US dollar price forecast 6 November 2020

2020-11-06

Dollar is following its heart. Forecast as of 06.11.2020Dmitri Demidenko

Investors are spending out the cash, which sends up the US stock indexes and the EURUSD. Everyone is trying to join the S&P 500 uptrend. However, the fundamental analysis suggests the euro should be weak. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly US dollar fundamental analysis

Markets are just like people. They follow their hearts from time to time and forget about common sense. Investors like the idea of the division in the Congress and the Democratic president. In this scenario, the risks of tax hikes and high tech companies’ strict regulation are much lower. This fact supports the stock indexes. The [S&P 500][2] has been up by 1% and more during four consecutive trading sessions, which has been for the first time since 1982. In percentage terms, those days have been the best since early April. Markets consider Joe Biden to be a better president than Donald Trump, which allowed the yuan to gain back more than 50% of the losses faced during trade wars. The [EURUSD][1] tested the resistance at 1.186-1.187.

The growing chance of Biden’s victory encourages investors to spend the cash, which they have been accumulating ahead of the US presidential election. They are buying stocks and bonds. However, traders forget about other factors, such as the pandemic, uncertainty around the new fiscal stimulus, and Donald Trump’s willingness to reject the voting results. It looks like an attempt to give out desirable for valid. According to TD securities, there should not be any concerns about challenging the voting results, which has pushed the risky assets up and weakened the US dollar. DZ Bank believes that the greenback is falling because the voting results were reported earlier than some had expected. I do not think the above arguments to be strong.

I suppose traders are following their hearts. They invest the capitals in the securities as they worry not to miss the uptrend, which sends the [S&P 500][2] up, fuels global risk appetite, and weakens the US dollar against a basket of currencies.

Dynamics of world’s currencies versus the US dollar

Source : Financial Times

How long can it be going on? It depends. People in love are passionate during different periods. However, common sense should win sooner or later. The USA performs better than the euro area at the current stage of the economic cycle. The Fed is not willing to boost the monetary stimulus while the ECB tends to increase the current QE pace. According to Bloomberg’s leading indicators, the largest euro-area economies face a deeper drawdown in the PMIs because of the new lockdowns. The euro- area bond yields fall, which signals that the markets expect the ECB to take active measures in December.

Recovery of the world’s economies

Source : Bloomberg

Yields on the euro-area bonds

Source : Wall Street Journal

Weekly [EURUSD][1] trading plan

Let us be sensible during times of euphoria. Although the EURUSD has rebounded from the resistance at 1.186, the [shorts][3] entered in the zone seem vulnerable. It will be relevant to hold down the shorts if the pair goes below the support at 1.179. The [S&P 500][2] rally could push the euro up above $1.188. The [EURUSD][1] medium-term outlook depends on whether the bulls can hold the price above 1.188.

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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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