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US dollar price forecast 23 December 2020

2020-12-23

2020-12-23

Dollar is humiliated. EURUSD forecast 23.12.2020Dmitri Demidenko

The 45th President of the United States demands Congress to reconsider the $900 billion bill it has passed and threatens not to sign it. How will this affect the dynamics of [EURUSD][1]? Let’s discuss this and create a trading plan.

Weekly US dollar fundamental forecast

Many traders prefer technical analysis to fundamental analysis not because they trust the charts. In their opinion, fundamental analysis is just too complex. Indeed, after Congress approved an $892 billion fiscal stimulus, Capital Economics and Oxford Economics raised their forecasts for US GDP for 2021 by 0.5-1 percentage points, the IMF warned that due to the spread of COVID-19 in Europe it will be forced to lower its eurozone GDP estimates, yet the forecast for [EURUSD][1] is still bullish! Donald Trump threatens not to sign the fiscal stimulus bill, thus depriving the economy of financial aid, but the greenback is rising. Finally, rumours are heard in the market that if Joe Biden and Janet Yellen abandon their strong dollar policies, the USD Index will skyrocket. Where is the logic? In fact, fundamental analysis is simple.

In times of recession and in the post-crisis period, investors have a heightened sense of global risk appetite, so all events should be viewed through the [S&P 500][2] perspective and the inverse correlation of the stock index with the US dollar. If the US economy accelerates thanks to the new fiscal stimulus, it would be good news for stocks but bad news for the greenback as a safe-haven asset. When Donald Trump brings confusion with his intention not to sign the bill approved by the Congress, the [S&P 500][2] falls and pulls [EURUSD][1] down with it. The White House’s abandonment of the strong dollar policy will be a blow to the financial markets that are used to it. Now let’s wait for the correction of stock indices and the strengthening of the dollar. It’s simple, isn’t it?

As for the IMF warnings about the reduction of forecasts for the eurozone GDP for 2020 (-8.3%) and 2021 (+ 5.2%) due to the spread of COVID-19 in the Old World, this is a matter of the euro, not the US dollar. Investors firmly believe in the victory over the pandemic with vaccines, in the acceleration of the global economy and international trade next year. Well, forecasts may be adjusted both for the worse and for the better.

IMF GDP Forecasts for 2020

Source: Bloomberg.

Despite the loud statements of Donald Trump who called the fiscal stimulus bill a disgrace and demanded to increase checks for Americans from $600 to $2,000, many investors consider the 45th President’s trick as a show-off. At the same time, the quiet reaction of the [S&P 500][2] indicates that financial markets are confident that the document will be signed.

The same can be said about Brexit, which, along with the global risk appetite, is currently the key driver of [EURUSD][1] price changes. The EU’s chief negotiator Michel Barnier calls Britain’s proposal that it should have 35-60% of the €650 million in European fishermen’s revenues unacceptable, but the pound is not falling. It looks like investors continue to believe in a last-minute trade.

Trading plan for [EURUSD][1] for the week

The second attempt of [EURUSD][1] to consolidate above the previously indicated resistance at 1.224-1.2245 was not successful. Will there be a third time? Or will the market decide to calm down on the eve of Christmas and go into short-term consolidation in the range of 1.2085-1.2245? In my opinion, the latter option is more likely. Time to relax?

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