Euro price forecast 30 December 2020

2020-12-30

Euro remembers alphabet. Forecast as of 30.12.2020Dmitri Demidenko

The trends of stock markets and the world’s leading economies have diverted this year. The trajectory of their movement resembled different letters of the English alphabet. How has this affected the [EURUSD][1]? Let us discuss and make up a trading plan.

Weekly euro fundamental forecast

In 2020, it has been fashionable to use the English alphabet letters as a market term. At the peak of the recession, the White House insisted on a V-shaped recovery of the US GDP. The Fed, which, along with the ECB and the Bank of Japan, provided $8 trillion in liquidity, the same amount as in eight years since the beginning of the previous crisis in 2008, was more cautious. Jerome Powell and his fellow central bankers suggested a U-shaped recovery trend. Investors discussed W-, L-, Nike-, and even K-shaped recovery. The K-shaped rebound means that some sectors recover faster, others – slower. For example, [Nasdaq][2] has added 40% since the beginning of the year, and it has been 90% up from the March lows. These figures are enormous compared to the banking or the UK’s [FTSE 100][3] that has been 12% down in 2020.

In fact, markets and different economies have been following differently shaped recovery trends. The stock indexes preferred a V-shaped trend, and the likely double-dip recession in the euro area (W) didn’t encourage the [EURUSD][1] bears. Conversely, at the end of December, the euro reached its highest level against the US dollar for the last more than two years amid the massive sell-offs of the safe-havens. Donald Trump’s defeat at the presidential election in November and the new package of fiscal stimulus and spending of $2.3 trillion have eased the uncertainty and sent the greenback down.

Investors do not worry about the fact that activity in several of the world’s largest advanced economies plummeted over the Christmas holidays and restrictions because of COVID-19. They expect the victory over the pandemic in 2021

Dynamics of economic activity

Source : Bloomberg

According to 33 experts polled by Financial Times, the euro-area GDP will expand by 4.3% due to vaccines. The economy will grow at the fastest pace since the introduction of the euro, which, of course, should encourage the [EURUSD][1] bulls. Although the median forecast is lower than the IMF’s projections of 5.2%, it is higher than the ECB’s predictions (+3.9%). Individual gauges ranged from + 1.5% to 6%.

Dynamics and forecasts for the euro-area GDP

Source: Financial Times

The US GDP should be growing faster than the euro-area economy, in the first quarter at least. Nonetheless, it doesn’t discourage the [EURUSD][1] bulls. So, the US economy will contribute to the global economic expansion and increase the risk appetite, pressing down safe- haven assets, including the US dollar.

Weekly [EURUSD][1] trading plan

Senate Majority Leader Mitch McConnell tied the increase in COVID-19 relief checks from $600 to $2,000, demanded by Trump, to two other measures the president wants - a probe of the November __ election results __and a provision scrapping the social media legal protections. In fact, it could override the expansion of the fiscal stimulus. However, investors still believe that the financial aid packaged will be boosted (either under Trump or Biden) and continue buying the[EURUSD][1]. As long as the pair is above 1.213, the bulls are controlling the market.

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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