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Euro price forecast 7 December 2020

2020-12-07

2020-12-07

Euro strikes while the iron is hot. Forecast as of 07.12.2020Dmitri Demidenko

It is unlikely that in the next 10 years, there should be the same sharp decline in the value of money to zero. So, the [S&P 500][1] rally won’t repeat soon. We should take advantage of the opportunities. Let us discuss the Forex outlook and make up a EURUSD trading plan.

Weekly euro fundamental forecast

As long as economic shocks cause turmoil in the financial markets, the weak US jobs reports will support the growth of stock indexes, and the expectations for the ECB monetary easing will strengthen the euro. Investors are hurrying up to join the uptrend, and the reason is not in the failure of fundamental analysis. The [S&P 500][1] rally doesn’t result from the good economic performance or strong corporate profits; the reason is in a sharp decline in the value of money to almost zero. It isn’t easy to imagine that something like this will happen again in the next decade. So, the US stocks will hardly surge so high again soon. Investors are taking the chance.

The US nonfarm payrolls report has been the weakest over the past seven months (+245,000), which suggests the US Congress should adopt a new fiscal stimulus package. Under such conditions, the [S&P 500][1] hits a fresh all-time high, and the [EURUSD][2] continues growing. Both parties suggested the US weak jobs report as a reason for swift and decisive action to provide the economy with the necessary assistance. Chicago Federal Reserve Bank President Charles Evans notes that, despite the US weak employment data, he won’t support the Fed’s additional monetary expansion since the central bank’s instruments are less effective than Congress’s fiscal stimulus. The US economy needs stimulus urgently.

The [S&P 500][1] rally is pressing down the US dollar; the USD has closed in the red for the third consecutive week hitting the lowest level since April 2018. The greenback’s rivals are hitting fresh record highs, however. The ECB, being concerned with the deflation, would not like the euro to continues strengthening. However, the potential extension of monetary stimulus does not discourage the [EURUSD][2] bulls. However, we should remember that the euro rally results from the dollar weakness rather than the euro strength.

Dynamics of world’s major currencies

Source : Financial Times

Obviously, if the reasons for the rise in stock indices are to be found in a sharp decline in the value of money to zero and vaccines, then without the normalization of the Fed’s monetary policy and problems with vaccinations, the S&P 500 should not start a deep correction. The Federal Reserve will not resort to monetary restriction until at least 2022-2023, so the bears on stocks and [EURUSD][2] should bet on delays in vaccination processes or their rejection by the population. Vaccines are good for the world but bad for the US dollar.

Weekly[EURUSD][2] trading plan

In the current situation, the ECB will hardly stop the euro rally. The [EURUSD][2] price already includes the possible QE expansion by €500 billion and the asset purchase program’s extension for another six months at the ECB December meeting. According to the source familiar with the matter, Bloomberg suggests the QE should be extended for another twelve months. If the information is confirmed, the [EURUSD][2] short-term correction could send the pair down below the supports at 1.212 and 1.208, which should be bought out. I suggest entering long trades at the price fall.

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=SPX&returnUrl=true
  2. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true