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US dollar price forecast 27 November 2020

2020-11-27

2020-11-27

Dollar should build a hedge. Forecast as of 27.11.2020Dmitri Demidenko

The greenback could further weaken if foreign investors hedge against currency risks of the investments into the US securities. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Quarterly US dollar fundamental forecast

On Thanksgiving day, when the US securities markets do not work, it is time to take a break and think about the future trading plan. The fundamental analysis theory reads that the exchange rate of a currency is determined by investment and trading capital flows, influenced by interest rates, economic growth, inflation, and other factors. With this regard, the growing USD shorts look natural. Investors look for more promising assets. The growing appeal of the assets outside the United States will facilitate the flow of capital from North America to other continents and weaken the greenback.

The process is already going on. The USD has been more than 10% down from the March highs and reached its two-year low amid the Fed’s aggressive monetary expansion and easing political tensions in the USA. Furthermore, investors believe in the improvement of the US-China trade relations under Joe Biden; they also hope the vaccines will support the global economic recovery. The dollar should continue weakening in 2021 amid the capital outflows from the USA and hedging against currency risks.

Goldman Sachs predicts that the greenback will weaken by 6% over the next 12 months, as the US stocks are fundamentally overvalued, the bond market rates do not rise with inflation, and the global economic recovery will encourage investors to search for better investment options outside the United States. Citi emphasizes that foreign investors have accumulated a huge stock of the US Treasuries. At the same time, bearish outlooks for the dollar and lower hedging costs will push them to hedge against currency risks by selling the USD. As a result, the USD index will fall by 20% in 2021, which is the most aggressive bearish forecast for the greenback.

**The share of currency risks hedging when buying Treasuries by

foreign investors**

Source : Wall Street Journal

I agree with the idea that the countries most suffered from the COVID-19 pandemic will start recovering fast due to vaccines, and their currencies will be strengthening. Nonetheless, I have a few questions. First, does it make sense to bet on the emerging markets’ assets, which will be the last to receive vaccines? Second, what if the vaccines won’t help? Unlike Pfizer and Moderna, AstraZeneca is not willing to register its vaccine now, suggesting the further tests are necessary.

I would not like to think about negative scenarios. Moreover, people deserve to forget 2020 quickly. They have made tremendous sacrifices and hopefully rethought the need to appreciate what they have. I believe, at the initial stage of vaccine introduction, we could consider buying European and Japanese stocks, which in November looked better than their US counterparts.

Quarterly[EURUSD][1] trading plan

In my opinion, the current situation suggests the [EURUSD][1] should be consolidating in the medium-term range of 1.18-1.22, followed by a breakthrough of its upper limit as vaccines are introduced, and the world economy recovers.

I recommend buying the euro on the corrections.

[EURUSD][2] current rate in the Forex market:

EURUSD = 1.19622

1-day change

0.00501 (0.42%)

Open an account with a reliable broker and start earning money on an easy-to-use platform in the global foreign exchange market.

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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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  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. my.lite.forex/trading/chart?symbol=EURUSD&returnUrl=true
  3. my.liteforex.com/?category=analysts-opinions&slug=dollar-should-build-a-hedge-forecast-as-of-27112020&openPopup=%2Fregistration%2Fpopup