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US dollar price forecast 18 November 2020

2020-11-18

2020-11-18

Dollar plays in a draw. Forecast as of 18.11.2020Dmitri Demidenko

While the Federal Reserve and the US stock market are trying to determine the US economic situation and its outlook, the [EURUSD][1] is rising. The euro bulls ignore the pandemic, and it is scary. Let us discuss the Forex outlook and make up a trading plan.

Weekly US dollar fundamental forecast

What is right? Central banks or financial markets? They are in a draw so far. The stock indices suggested a recession, while the Fed’s officials claimed that the US economy was strong and the downturn was unlikely. The Fed had underestimated the pandemic impact. However, the Federal Reserve took urgent measures and stabilized the economic situation. The [S&P 500][2] rally in the March-September period suggested a V-shaped recovery of the US GDP, while Jerome Powell complained that it would take a long time to return to the pre-crisis levels. In November, the US stock market hits fresh highs, while the Fed’s Chairman warns that the next few months should be tough for the US economy. What is right this time, the stock market or the Fed?

Jerome Powell worries that people will lose confidence in efforts to combat COVID-19 and abandon activities that they believe could put them at risk of infection. This is what takes place already. Yes, progress in the development of vaccines is good news in the medium-term outlook, but it will take a long time to reach full economic recovery. Common sense suggests the Fed’s Chair is right. The second pandemic wave turns the economic downturn from a shock into a long-term recession worsened by the uncertainty. Furthermore, the mass vaccination of the population will take many months. What about the [S&P 500][2] record highs?

The paradox is that the US stock market rally results from the …Fed’s actions. The huge injections of liquidity have confused investors. Investors used to prefer cash, which sent the stock market down. But next, they rushed to spend the money buying stocks. The news about vaccines just gave the speculators another reason to buy. The matter is what is behind the [S&P 500][2] bulls’ optimism and how soon they will regain consciousness.

If we let alone the US stock market’s crazy rally, we should realize that the US economy performs better than the euro-area. Yes, the US industrial production is 5.6% lower than before the pandemic; yes, the retail sales in October grew at the lowest rate over the last six months; yes, the number of new COVID cases has soared to 166,000 per day. However, the mortality rate in the euro-area is rising, making the euro-area governments impose restrictions.

Dynamics of mortality from COVID-19

Source : Financial Times.

Weekly [EURUSD][1] trading plan

The euro-area economy was already weak before the pandemic. It had several problems, including low inflation and low exports because of the US-China trade war. In the third quarter, the euro-area economy was recovering faster than the US. However, the euro area could face a double-dip recession in the October-December period. Under such circumstances, the [EURUSD][1] rally looks strange, to say the least. The euro rally should soon end unless the [S&P 500][2] continues rising. If the pair goes below the zone of 1.184-1.1845, it will be relevant to sell the euro against the dollar.

On the other hand, speculators could go on buying without any fundamental reasons. The Fed’s cheap money encourages traders to buy assets now, as the prices could grow later. Emotions rule the market, and it looks scary.

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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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