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US dollar price forecast 17 December 2020

2020-12-17

2020-12-17

Dollar was taken down a peg. Forecast as of 17.12.2020Dmitri Demidenko

Fed and the US Congress fueled global risk appetite, and the euro-area economy is recovering. It is a perfect environment for the EURUSD rally, isn’t it? However, negative drivers can appear at any moment. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly US dollar fundamental forecast

The euro has too many growth drivers, which looks too good to continue for long. According to MUFG, the [EURUSD][1] can well hit 1,24-1,25, and it seems reasonable at first. The Fed’s dovish stance and the adoption of new fiscal stimulus by Congress leaders have returned the [S&P 500][2] to all-time highs. These factors press down safe-havens, including the US dollar. The EU stated there is only one barrier to the UK-EU trade deal, fishing. Once the fishing issue is agreed on, there should be a Brexit deal signed. The euro-area economy is recovering….If only things were so simple in Forex.

The Federal Reserve and US Congress took every measure to increase global risk appetite. Democrats and Republicans agreed on the additional aid package of about $900 billion. The Fed changed the guidance on the asset purchases program’s terms at a monthly pace of $120 billion. The FOMC also revised the US GDP projections up and left the fed funds rate unchanged in a range of 0% to 0.25%. Only one FOMC member sees the first rate hike in 2022; five of the 17 members saw the fed funds rate up above its current range by 2023, while the other officials prefer to wait and see.

Projections for the Fed rate

Source : Bloomberg

The Fed says the US GDP will contract in 2020 by 2.4%, which is better than a drop by 3.7% expected earlier.  The central bank now sees 4.2% economic growth in 2021, up from 4% in September. The Fed announced it buy the assets “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” Jerome Powell didn’t say exact figures but called the current guidance powerful. The central bank didn’t launch the ‘twist in operation,’ which sent the [S&P 500][2] and [EURUSD][1] down first. However, Powell explained that the long-term rates are already low, stimulating such industries as the housing market. The euro’s correction down was a chance to buy at a lower price. That was what I recommended in the [previous analytics.][3]

The EURUSD broke out level 1.22 amid the rise of the euro-area composite PMI from 45.3 to 49.8. The US PMI turned down, which suggests a growth gap. Besides, the EU adopted the financial aid package of €1.8 trillion. The current situation is similar to that of late spring-early summer when the [EURUSD][1] rally started.

Dynamics of PMIs

Source : Wall Street Journal

Weekly [EURUSD][1] trading plan

The euro has many growth drivers, too many, in my opinion. The bulls on the [S&P 500][2] and the pound could start exiting longs amid the market rule ‘buy on rumors, sell on facts.’ The Fed and Congress have taken their steps; the investors have almost entirely traded the Brexit deal. Why not cash out the assets and take a rest at the end of the year? Of course, I don’t recommend you to catch falling daggers, but the [EURUSD][1] may not break out levels 1.224-1.2245, 1.23-1.2305, and 1.234-1.2345 as quickly as MUFG believes.

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.liteforex.com/trading/chart?symbol=SPX&returnUrl=true
  3. www.liteforex.com/blog/analysts-opinions/fed-and-butterfly-effect-eurusd-forecast-16122020/