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Euro price forecast 12 November 2020

2020-11-12

2020-11-12

Euro and ‘fun isolation’. Forecast as of 12.11.2020Dmitri Demidenko

The history repeats. In late spring-early autumn, the [S&P 500][1] pushes the EURUSD up. The same could occur in the rest of 2020. Let us discuss the Forex outlook and make up a [EURUSD][2] trading plan.

** Monthly euro fundamental forecast**

I have often mentioned that the fourth quarter should be similar to the second, although the disaster should be less dramatic. This is evident from economic data, which suggests the current restrictions hit the euro-area economy. However, the damage is far less than it was during the previous lockdown. People continue going to work, manufacturing operates, and the government restricts entertainment and retail trading. The so-called ‘fun isolation’ suggests that vaccines’ introduction will allow the euro-area economy to recover soon. This fact lets me hope that the [EURUSD][2] correction won’t be deep.

Of course, the ECB would like the euro to cost as little as possible, which will support exports and accelerate inflation. In her recent speech, Christine Lagarde highlighted the effectiveness of the Pandemic Emergence Purchase Program (PEPP) and anti-crisis long-term refinancing operation (LTRO). This was a clear signal that both of them will be expanded in December. On the other hand, the ECB president did not say anything about interest-rate changes. It is quite possible that by increasing the scale of QE, the ECB will cause the same reaction in [EURUSD][2] as the Bank of England did by its similar actions. Remember, the pound rose in response to the BoE monetary easing in November.

Dynamics and structure of ECB assets

Source : Bloomberg

But still, the primary growth driver for the EURUSD is not the liquidity trap suggesting lower efficiency of the stimulating measures as their volumes increase and inadequate response of the regional currency. That is the rally of the US stock indexes, which supports the euro. Yes, the [S&P 500][1] growth on November 9 unexpectedly supported the dollar. But this situation resulted from the realization of the investment idea of Biden’s victory in the US presidential election. The correlation between the US stock market and the [EURUSD][2] should soon restore, which could encourage the euro bulls to go ahead.

The record stimuli as the response to the recession have poured a huge amount of money into the financial system. Ahead of the elections, investors preferred to hold cash because of uncertainty. Now, that money goes back into the market. Amid positive news about vaccines, the [S&P 500][1] rallies thanks to traditional industries, including industry and banking. As soon as there are talks about a long vaccine introduction process, the stock market is still rising. This time thanks to the tech stocks.

Monthly [EURUSD][2] trading plan

The current situation looks like that of the second quarter when the US and the euro-area economies slid down into recession, and the [S&P 500][1] was growing. Investors expected the recession to end soon, and the GDP recovery to be V-shaped. The same is now. It will take a long time to introduce the COVID-19 vaccine after it has been approved. However, the stock indexes are rallying up, suggesting purchases of the [EURUSD][2] if the price closes above 1.18 and 1.1845. Otherwise, the US stock market correction will send the euro down to $1.172 and $1.167.

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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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  2. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
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