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Euro price forecast 28 December 2020

2020-12-28

2020-12-28

Two scenarios to trade the euro. Forecast as of 28.12.2020Dmitri Demidenko

Will the pandemic end in 2021? Who will control the U.S. Senate? The answers to these questions will determine financial markets’ sentiment, including the EURUSD. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Fundamental euro forecast for a year

Place your new bets, ladies and gentlemen! The old ones have already worked out! U.K. and EU reached a historic Brexit trade deal; Donald Trump signed the $2.3 trillion COVID aid bill approved by Congress. The uncertainty eased, which should have encouraged the EURUSD bulls. However, the euro hasn’t yet continued the rally. Are the buyers still celebrating Christmas, or is there another reason? The market can’t exist without uncertainty. Investors are now concerned about other problems. __ __

The reasons why Donald Trump changed his mind and signed the bill to prevent government shutdown remain unknown. According to Reuters source familiar with the matter, the US president was influenced by advisers who saw no reason to refuse. Trump’s threat to block the bill made investors worry and discouraged the[S&P 500][2] bulls. Therefore, after the spending plan has been finally signed, the stock index should start rising. However, investors could follow the principle ‘buy the rumor, sell the news.’

One could see how the principle works on the Brexit example. According to Boris Johnson, the deal with the EU ended the political uncertainty in the UK, setting the UK economy on the way to recovery from the pandemic. So, the political environment has improved, uncertainty has eased, the pound should have continued rising, but it failed to consolidate above $1.36, as investors preferred to take profits.

Former bets have worked out. What’s next? Investors now wonder if the vaccines will defeat the COVID-19 pandemic and whether Joe Biden will further expand the fiscal stimulus. The President-elect claims that the $2.3 trillion aid package is just the beginning. If the money continues flowing into the economy and financial markets, given the delayed effect of the oil price growth, the financial world could face reflation, the Fed’s interest rates could start rising, along with the bond market rates, which will trigger mass sell-offs in the US stock market.

Dynamics of oil and inflation expectations

Source : Nordea Markets

This scenario, first of all, depends on whether Democrats will control the Senate, which will be announced in January. Otherwise, Republicans will set back Joe Biden’s plans.

[EURUSD][1] trading plan for a year

Therefore, we could more or less anticipate the EURUSD trend only in the middle of the winter. If there are new fiscal stimuli, reflation, and a change in the Fed’s policy, the euro-dollar in the second half of 2021 could follow the pattern of 2017 and turn down after reaching the zone of 1.25-1.27

Source : Nordea Markets

Otherwise, if the Fed will hold the interest rates low, the euro could reach the level of $1.3 in 2021. The euro’s major growth driver will be the victory over the pandemic, rapid recovery of the global economy and international trade, and easing of the political and geopolitical risks.

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