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US dollar price forecast 24 December 2020

2020-12-24

2020-12-24

Euro goes out on the ice. EURUSD forecast 24.12.2020Dmitri Demidenko

The rapid growth of the world economy and high demand for European assets draw a bright future for [EURUSD][1]. But what if something goes wrong? Let’s talk about this and create a trading plan.

Weekly fundamental forecast for the euro

Most recessions begin when excessively high central bank rates reduce demand, which worsens the situation in the labour market and further reduces demand. The current downturn is reminiscent of the economy’s response to a natural disaster, an earthquake or a tsunami. When they happen, businesses are closed and the supply decreases. Once the disaster is over, the economy faces a V-shaped recovery. In this regard, effective vaccinations will lead to rapid growth in global GDP, increase risk appetite and help continue the [EURUSD][1] rally. Everything seems to be very simple, however, life, and in particular Forex life, resembles an ice rink. You could fall at any moment.

I would like to remind you that 2020 began positively. Markets rallied on expectations of a US-China trade deal that would have revived international trade, accelerated global GDP and boosted the euro. Alas, at the turn of winter and spring there was a force majeure in the form of a pandemic, cancelling the bulls’ ambitious plans for [EURUSD][1]. But not for long. The second half of the year turned out to be great for the main currency pair. Today, the belief in its bright future is based not only on the positive impact of vaccinations on global GDP but also on the high demand for European assets. Particularly, for Italian bonds. Commerzbank, JP Morgan, HSBC and UBS believe in the further reduction in the yield spread between the Italian bonds and the German ones.

Yield spread dynamics for bonds in Italy and Germany

Source: Bloomberg.

The main problems for the bulls on [EURUSD][1] are the two trump cards of the dollar. Will it get them out or not? I am talking about the potential strengthening of the greenback when uncertainty increases or in case of the American economy outpacing the world economy in growth (the dollar smile theory). Uncertainty is good for the USD index - it can be judged by its reaction to Donald Trump’s threat to veto the $892 billion fiscal stimulus bill. The greenback rose, but the [EURUSD][1] bears weren’t happy for long.

Congress passed the bill with more than 2⁄3 of the vote, therefore it has the right to override the president’s veto. Trump’s own party might cross his way. Democrats clung to the proposal of the president to increase the relief check for Americans from $600 to $2000 but the Republicans are ready to block it. If the 45th US president does not veto or sign the document, it will become law in 10 days. During these days, the dollar will continue finding support in uncertainty.

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

Brexit is quickly becoming the main growth driver for [EURUSD][1]. The EU and the UK have agreed on fisheries and government aid and are about to conclude a historic deal. In theory, this should inspire the pound and the euro to rise, but bulls may start fixing their profits, being guided by ”buy the rumour, sell the news” principle. A breakout of the resistance levels at 1.2225 and 1.2245 could trigger [EURUSD][1] to go up to the December high, but wouldn’t it be better to act after Christmas?

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