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US dollar price forecast 11 November 2020

2020-11-11

2020-11-11

Dollar smiles again. Forecast as of 11.11.2020Dmitri Demidenko

While the EURUSD bulls wonder why the price isn’t rising, the bears see the reasons for a deeper correction. What’s next? Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Monthly US dollar fundamental forecast

It is impossible to predict market trends. The market is unpredictable; it can always surprise us. The [EURUSD][1] bulls are surprised because the pair doesn’t grow. There should be several reasons for the euro growth. Joe Biden has won the US presidential election; there is positive news about the COVID-19 vaccines. Investors should have started selling the dollar. However, the greenback remains strong, encouraging traders to buy the USD.

Jefferies notes that the USD closed in the red zone six months out of the last seven, having been down by 11%. The dollar’s surge on November 9 proves that most of the negative had been priced in the quotes, and the greenback will hardly start falling now. The central bank in Europe and Asia, which compete with the Fed, are willing to provide an extra monetary stimulus, which is a bearish factor for their local currencies. Jefferies sees the [EURUSD][1] falling to 1.14 as the dollar smile theory is popular again. It suggests the USD should strengthen at the final, third stage of the economic cycle because the US GDP outperforms the global peers.

Even though the next two quarters, according to the President of the Federal Reserve Bank of Dallas Robert Kaplan, will be tough for the US, it should demonstrate robust growth in 2021. Unlike Europe, the USA does not impose a lockdown, and the restrictions introduced in the euro-area countries are costly. For example, each month of helping businesses and workers in Italy affected by COVID-19 will cost Rome €10 billion. If the restrictions last through March, it will cost €40 billion - €50 billion, or 3% of GDP. Furthermore, the PMIs and other indicators are falling, which is confirmed by a decrease in the ZEW Indicator of Economic Sentiment for Germany to the lowest level since April.

Dynamics of German economic sentiment index

Source : Bloomberg

The epidemiological situation in the euro area deteriorates. The ECB estimates that one in seven workers in Spain is associated with a business at risk of collapse, which compares with 8% of employees in Germany and France, and 10% - in Italy. The divergence in economic growth is in favor of the USA, which presses down the [EURUSD][1].

And what about Biden’s victory and coronavirus vaccines? I believe the first driver has already worked out, which is evident from the euro drop on November 9. There is still much uncertainty around vaccines. Nobody can say how quickly they will be introduced and how long the immunity will last. The market needs time. The US stock indexes could be overvalued and will be unstable in the next few weeks. Besides, the positive news about COVID-19 vaccines will give Republicans a reason to delay or adopt a smaller fiscal stimulus than previously anticipated.

** Monthly [EURUSD][1] trading plan**

The euro should be strong in the long-term outlook, but it should weaken in the short term. Under such conditions, one could buy the [EURUSD][1] at the breakout of the resistance at 1.192. It will be relevant to sell the euro-dollar if the price breaks out the support at 1.179.

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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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