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Euro price forecast 29 December 2020

2020-12-29

2020-12-29

Pandemic strengthened the euro. Forecast as of 29.12.2020Dmitri Demidenko

When everything is bad, people buy the dollar. When everyone hopes for the better, the greenback loses its shine. The EURUSD sentiment has radically changed in 2020. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly euro fundamental forecast

In the first half of 2020, the pandemic was the primary source of uncertainty, pressing down the global risk appetite. Everything has radically changed in the third and fourth quarters. COVID-19 saved American democracy, strengthened EU unity, and even pushed the UK and the European Union towards a Brexit deal. News about the development and successful trials of vaccines, as well as the launch of a vaccination campaign against coronavirus, has supported the global stock indices. The first half of 2021 should be more similar to the end of 2020 than the beginning. This is a bearish factor for safe-havens, including the US dollar.

Let us remember January 2020. Donald Trump’s positions were strong; he launched the tax reform and made China meet the US trade demands. Trump’s approval ratings were high, and few doubted that he would be re- elected for the second term. However, the inefficient pandemic management resulted in Trump’s defeat in the November election. The U.S. President used to be the main source of uncertainty due to his eccentric speeches and decisions, and the U.S. dollar was growing. The pandemic was one of the reasons for Trump’s loss, and, in fact, the uncertainty eased, weakening the greenback.

Something like this happened in the euro area. There had been the risks of the euro-area breakup before the first pandemic wave. However, the EU coronavirus recovery fund eliminated the breakup risks, eased political risks, and pressed down safe-haven assets. But for the COVID-19, the UK wouldn’t have so readily agreed to sign the Brexit deal. The pandemic caused the UK economy to slide into the worst recession over the past three hundred years, and a no-deal Brexit could have made it worse.

Therefore, the pandemic contributed to the uncertainty easing and the US dollar weakening as a safe haven. So, it is not surprising that the USD net bearish non-commercial positions have reached the highest levels since 2011.

Dynamics of USD index net non-commercial positions

Source : Bloomberg

At the end of the year, each new day is more likely to remove uncertainty than add it. So, the greenback’s weakness is not surprising. The markets are optimistic, and the [S&P 500][2] hits fresh highs. The vaccination has started in the euro area. Besides, Donald Trump signed the new fiscal stimulus package. Furthermore, the House of Representatives voted to meet Trump’s demand to boost COVID-19 relief checks from $600 to $2,000, adding $464 billion to the aid plan. These factors support the growth of global stock indexes and [EURUSD][1].

An obstacle to the euro’s rally is the pound’s drop. Traders exit pound longs and market analysts admit that the Brexit deal terms are not optimal for the UK.

**Weekly[EURUSD][1] trading plan **

If the US Senate adopts the House’s bill, it will support the [S&P 500][2] rally and increase the global risks appetite. In this case, the [EURUSD][1] could break out the resistances at 1.2245 and 1.226 and continue growing towards 1.2305 and 1.234.

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