Euro price forecast 11 December 2020

2020-12-11

Euro got a blank check. Forecast 11.12.2020Dmitri Demidenko

The ECB couldn’t discourage the [EURUSD][1] bulls. The euro rolled up to the highest levels since the spring of 2018 and is about to continue the rally. Let us discuss the Forex outlook and make up a trading plan.

Monthly euro fundamental forecast

Compromise is not always the best way to solve a problem. Unlike Mario Draghi, who suppressed the Governing Council’s hawks with his authority, told the market what he considered necessary, and thus manipulated the euro as he wanted, Christine Lagarde prefers to convey to investors the collective position of the ECB. She said the Pandemic Emergency Purchase Programme (PEPP) might not be utilized in full scale, which sounded similar to Jens Weidmann and his supporters’ speeches. The hawkish tone of Lagarde’s comments at the press conference following the ECB December meeting sent the [EURUSD][1] up to the zone of 2.5-year highs.

Of course, the ECB couldn’t have broken the euro uptrend, but at least it could have tried to press it down a little. In fact, the forecasts are too gloomy, and the actions are expected. The European Central Bank lowered its forecasts for 2021. The expected GDP growth is down from 5% to 3.9%; the expected inflation rate is down from 1.3% to 1.1%. Lagarde expects the euro-area economy to contract 2.2% in the fourth quarter. At the same time, the expansion of the emergency asset purchase program by € 500 billion, as well as the extension of PEPP until the end of March 2022 and LTRO until the end of June 2022, have not surprised investors at all. On the contrary, some of them expected that both programs’ terms would be extended by twelve months. Extension by nine months is further evidence of Christine Lagarde’s compromise with the hawks.

Considering the December adjustments, the ECB’s monetary stimulus will exceed € 3 trillion this year. The central bank is actually targeting the bond yields of the EU countries; that is, it gives a blank check to the EU governments. They could borrow money, and the ECB will pay the debts.

Dynamics of ECB quantitative easing programs

Source : Wall Street Journal

Dynamics of euro-area bond yields

Source : Wall Street Journal

Germany and other EU countries actively use ECB programs. Through an agreement with Budapest and Warsaw, Berlin found a way to reverse the veto of Hungary and Poland on approving a € 1.8 trillion fiscal stimulus package, including the € 750 billion post-pandemic recovery fund. The approval of programs by the European Union is an important milestone in the development of the united Europe. The risk of the euro area breakup is down to almost zero. Furthermore, a massive fiscal stimulus will support further integration of European countries and transition to a low-carbon economy . __

Monthly[EURUSD][1] trading plan

The current situation is similar to the market sentiment in the May- August period. At that time, the ECB officials suggested a potential yield control policy and launched the post-pandemic recovery fund. Besides, the recovery of the US stock indexes encouraged the EURUSD bulls to start a rally up. Now, history not only repeats itself but rhymes as well. The [EURUSD][1] buyers ignore Boris Johnson’s promises to withdraw the UK from the EU with or without a deal. The bulls do not pay any attention to the [S&P 500][2] correction amid the absence of the compromise on the fiscal stimulus in US Congress. The euro is rallying up to the targets at $1.224 and $1.23, and we can enjoy the victory and pick up corrections.

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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