Euro price forecast 4 December 2020

2020-12-04

Euro will stand a trial. Forecast as of 04.12.2020Dmitri Demidenko

The [EURUSD][1] rally is impressive. However, the major growth drivers are in the USA rather than in the euro area. The euro-area economy is weak. Why isn’t the euro falling? Let us find out the answer and make up a trading plan.

Weekly euro fundamental forecast

Investors believe in the [EURUSD][1] bullish outlook in the long term. In the short term, however, the euro bulls should stand a trial. The higher the euro is rising, the more investors start considering the negative factors. The euro buyers are ready to exit longs at any moment, which could trigger a drawdown. There should be a reason to sell the euro, and the reason could emerge.

In November, the major bearish drivers weakening the US dollar were easing political uncertainty and increasing the global risk appetite. In early December, the greenback fell out of favor due to the return of talk about a reflationary environment. On the one hand, investors are convinced of the global economic recovery amid the positive news about COVID-19 vaccines and look for investments outside the US. ON the other hand, the US securities become less appealing. Joe Biden welcomed the $ 908 billion compromise fiscal stimulus proposal and said any deal would now be the first step ahead of new legislation when he takes office. The new US president is confident that the economy will need more help.

The Treasury yield is not growing amid the concerns of the Fed’s potential ‘operation twist,’ and the inflation expectations are surging up to the highest levels over the past twelve or eighteen months. The US bond market real rates are falling, making the US assets less appealing and supporting the capital outflow from the US to other countries. In 2021, the money must be flowing to Europe. However, according to the euro-area PMI change, the region sets back the global economy.

Dynamics of PMIs

Source : Wall Street Journal

Even without a double-dip recession in the euro area, the euro has enough problems. According to the forecast of 33 analysts polled by Bloomberg, the ECB is to expand the emergency asset purchase program by €500 billion at the meeting on December 10. The ECB is also expected to extend the QE term from the middle to the end of 2021 and increase the LTRO volume. The EU and the UK are failing to agree on the Brexit terms, and the tough position of France suggests the Brexit deal may not be signed this year. The EU governments cannot agree on the recovery fund of €750 billion because of Poland and Hungary. The EU even considers plan B, which would exclude these countries from the program.

Dynamics of ECB asset purchases

Source : Bloomberg

Weekly [EURUSD][1] trading plan

Therefore, the euro has got enough weak points, and the investors will see the euro flaws once the rally of the US stock indexes suspends. The first alarming signal has already appeared. Pfizer’s announcement of supply chain problems causing vaccine production to be cut from 100 million to 50 million doses in 2020 intimidated investors and sent down the US stock indexes on December 3. The [S&P 500][2] and the [EURUSD][1] may also drop if the US jobs report is poor. If the euro rolls down below the supports at $1.2125 and $1.208 may be the reason to exit long trades.

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

EURUSD = 1.21247

1-day change

-0.00172 (-0.14%)

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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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