Logo

Posts

US dollar price forecast 6 January 2021

2021-01-06

2021-01-06

Run, Dollar, run! Forecast as of 06.01.2021Dmitri Demidenko

While Georgia counts election votes, the EURUSD traders forgot about the pandemic. Regardless of who wins, the [S&P 500][1] should continue the rally, and global risk appetite will rise. How will the dollar react? Let us discuss the Forex outlook and make up a [EURUSD][2] trading plan.

Quarterly US dollar fundamental forecast

Do not make hasty decisions! The [EURUSD][2] pair is trading around level 1.23 but doesn’t rise higher, expecting Georgia’s voting results. The Republicans’ victory will restore the status quo supporting the growth of large US tech companies, which are now concerned about tightening tax laws under Joe Biden. The triumph of Democrats will increase the likelihood of additional fiscal stimulus, a reflationary environment, supporting the stock indexes. The [S&P 500][1] should continue rally anyway. If so, the US dollar bulls will step back.

Donald Trump is making weak attempts to stay in power, which results in a division of opinion among Republicans. Some members of the Republican party believe that Trump will be responsible in case the Elephants lose. Traders realize that Trump’s attempts to overturn the election are groundless so, the greenback will hardly start a correction up. Investors still remember the slogan ‘what is good for Trump is good for the dollar,’ and Trump is in trouble now.

Regardless of Georgia’s election results, the US fiscal policy will remain stimulating, and the monetary policy – ultra-easy. Federal Reserve Bank of Chicago President Charles Evans says monetary policy needs to focus on the economy and that Fed officials should turn to regulatory tools if they see any problems in the stock market related to, for example, the risks of financial instability or bubbles. The Federal Reserve is not going to change its stance, and the ‘blue wave’ could push the [S&P 500][1] even higher. The [EURUSD][2] bears can do nothing but run.

US politics has distracted investors’ attention from the coronavirus for a while. According to the World Bank’s forecasts, if vaccination yields positive results, global GDP will expand by 4% in 2021. If vaccines are not effective, the global economy will grow by 1.6%. The first gauge was lowered by 0.2% compared to the data reported in June, which results from the second COVID-19 wave and associated lockdowns.

World Bank’s forecasts

Source : Financial Times

The World Bank lowered its forecasts for euro-area GDP in 2021 from 4.5% to 3.6%, the expected US GDP growth is down from 4% to 3.5%. The growth gap is narrowing, which is a bearish factor for the [EURUSD][2] in the middle term. The euro rally might end in the first quarter already. The matter is how far the pair will rise before it starts consolidation or a correction.

The uptrend is strong in the meanwhile. The Fed will hardly hike the interest rate before 2024. Neither the status quo in Congress nor a ‘blue wave’ will stop the US stock indexes’ rally. Besides, investors are not concerned about an increase in COVID-19 cases or the record number of hospitalizations in the USA. Yes, humankind could face the third and the fourth pandemic waves, but vaccination will eventually help to win the battle with the coronavirus.

Quarterly [EURUSD][2] trading plan

I reckon the [S&P 500][1] could hit its all-time highs, and the [EURUSD][2] should be up to 1.25-1.27 in the first quarter. It is still relevant to buy the euro versus the US dollar.

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.

Rate this article:

{{value}}

( {{count}} {{title}} )

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