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Euro price forecast 3 December 2020

2020-12-03

2020-12-03

Euro is struck by the fever. Forecast as of 03.12.2020Dmitri Demidenko

The major currency pair continues to ignore negative factors. The euro is following the [S&P 500][1] that hits fresh all-time highs. How long will the rally continue? Let us discuss the Forex outlook and make up a [EURUSD][2] trading plan.

Weekly euro fundamental forecast

The fever, which has struck the US stock market, sends the [EURUSD][2] above the bottom of figure 21, where the pair was last time in 2018. The [S&P 500][1] bulls notice only positive news and ignore the negative, so the stock indexes break through its all-time highs. Traders are unwilling to sell the stocks as they know that the monetary and fiscal stimulus will continue in the near future. They ignore the fact that the US stock indexes are fundamentally overvalued as the market is ruled by euphoria. It is really hard to remain sensible in this situation.

The [S&P 500][1] uptrend, which accelerated after the optimistic news about vaccines’ trials and lower political uncertainty in the USA in November, should have exhausted. However, bulls are encouraged in early December by the news about the negotiations’ resumption on the US fresh stimulus package. Democratic leaders in Congress have pledged to cut claims from the current $2.4 trillion, arguing that the $900 billion bailout offer could be a starting point for continued talks. Investors hope that the agreement would be signed before the end of the year, supporting the US stock indexes and sending the US dollar down.

In addition to the revival of the fresh US fiscal stimulus talks, the idea of the reflation appears again. The next five and ten years’ inflation expectations have reached the highest level over at least the last twelve months. Besides, the growth of the Treasury yields has been suspended. Investors expect the Fed to launch the ‘operation twist’ already in December, focusing on long-term bond purchases. A decline in the Treasury real yield is a bearish factor for the dollar. The USD index has closely approached the lowest levels of 2018. If the greenback breaks through the lows of 2018, it could crash down to the lowest levels since 2014…

Dynamics of USD index

Source : Bloomberg

When the global economy is generally strong, the greenback is weakening. Therefore, the dollar sell-offs are fueled by the information that the current crisis won’t be as dramatic as expected. At the beginning of the year, the WTO suggested the international trade would shrink by 32% in 2020, which would be the worst drop since the Great Depression in the 1930s. Currently, international trade is 9.2% down, which is better than the drop of 12% recorded during the previous recession.

The fever in the US stock market allows the [EURUSD][2] bulls to ignore the negative. For example, ADP says private payrolls grew at their slowest pace since July. The ECB officials sound dovish; they are willing to expand the QE size and extend its term. Besides, Dallas Fed President Robert Kaplan says the Fed, following the tough months for the US economy, should consider reducing the volume of bond purchases. __

Weekly[EURUSD][2] trading plan

In my opinion, the market should realize the real situation soon, which will result in the [EURUSD][2] middle-term consolidation in the range of 1.18-1.22 or 1.19-1.23. Of course, I don’t recommend buying the US dollar now, but you should be very careful with selling it.

[EURUSD][3] current rate in the Forex market:

EURUSD = 1.21440

1-day change

0.00305 (0.25%)

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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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  3. my.lite.forex/trading/chart?symbol=EURUSD&returnUrl=true
  4. my.liteforex.com/?category=analysts-opinions&slug=euro-is-struck-by-the-fever-forecast-as-of-03122020&openPopup=%2Fregistration%2Fpopup