US dollar price forecast 24 November 2020

2020-11-24

Dollar prepares for transition. Forecast as of 24.11.2020Dmitri Demidenko

Lower political risks in the USA break the link between the [EURUSD][1] and the US stock indexes. The euro needs fresh drivers. Let us discuss the Forex outlook and make up a trading plan.

Weekly US dollar fundamental forecast

Although markets live in illusions (they ignore negative news and respond to positive information), they acknowledge the reality from time to time. How could the [EURUSD][1] be running up to 1.2 if the euro-area PMI is down to the lowest level since May while the US PMI performs the best growth over the last 5.5 years? The divergence in the economic expansion sets the euro bulls back, but the correction will hardly be deep.

The euro-area composite PMI was down from 50 to 45.1 in November. According to Markit, it means the euro-area GDP should contract by 1.9% in Q4. Oxford Economics expects a deeper downturn, by 2.6% quarterly. The PMI drop is not as deep as it was in spring when the euro-area PMI dropped by 40 points to 13.6 in two months, and the economy contracted by 12% in the second quarter. However, the European economy is still extremely weak. At the same time, US PMI hits the highest level since March 2015 amid Joe Biden’s victory in the US presidential election and positive news about vaccines.

Dynamics of PMIs

Source : Wall Street Journal

The correlation between the [EURUSD][1] and the [S&P 500][2] goes weak, and the major currency pair needs fresh drivers. One of the drivers is the divergence in economic growth. I have often noted that the US dollar and the US stock indexes move in opposite directions during the market turmoil. However, once the markets stabilize, the negative correlation between the dollar and the stock market fades away. Donald Trump has accepted a formal US transition should begin for President-elect Joe Biden to take office. Joe Biden is to nominate Janet Yellen as Treasury Secretary. This news suggests the US political risks are lower, and investors should calm down.

I believe both the [S&P 500][2] and the [EURUSD][1] should enter consolidation soon. In 2021, the euro and the US stock market will be rising as the global economy will be recovering after the trade wars in 2018-2019 and the pandemic in 2020. Bloomberg expects global GDP to shrink 4.1% this year and expand 4.9% next year, making risky assets the favorites and safe-haven assets outsiders.

Bloomberg forecasts for GDP

Source : Bloomberg

A change in US-China trade relations should produce a strong effect. Trump tries to worsen them before he leaves office. The new plan of his administration provides for a coordinated allied response to the illegal actions of China. They should buy back the exports of the affected country (for example, Australia) and then use import tariffs against China to offset their costs.

Weekly[EURUSD][1] trading plan

Such an approach lowers the US-EU trade war risks, which is a bullish factor for the euro. The [EURUSD][1] long-term outlook remains bullish. Therefore, it makes sense to follow the trading strategy [recommended earlier][3] and buy the euro-dollar on the price fall, followed by a rebound up from the supports at 1.18, 1.176, and 1.172.

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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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