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Euro price forecast 11 January 2021

2021-01-11

2021-01-11

Euro is to pass stability test. Forecast as of 11.01.2021Dmitri Demidenko

Any trend needs a correction. Bloomberg experts suggest the [EURUSD][1] reach level 1.25 in 2021, but it won’t happen in January, of course. Let us discuss the market outlook and make up a trading plan.

Weekly Euro fundamental forecast

Stability test. That is how the current market situation looks like. As I expected, the US weak jobs report opened the door to the [EURUSD][1] correction. The euro bulls are so worried about the drop in the US nonfarm payrolls by 140,000 that allowed the major currency pair to go down to the middle of figure 21. There is a clear divergence between the euro-dollar and the US stock indexes, which looks strange as the [S&P 500][2] and the [EURUSD][1] were moving in sync during most of 2020.

The euro bulls are scared, and as the price is going lower, the fear is growing. Most large banks and investment companies, including Goldman Sachs, BofA Merrill Lynch, Citi, Standard Chartered unanimously claim that the dollar assets will lose their appeal due to the inflation growth. The Fed will have to hike the federal funds rate to prevent it, but it won’t do anything, so the greenback should weaken in 2021. As a result, the [EURUSD][1] should rise to 1.25. However, nobody says it will happen in January. The market can’t be growing all the time, and it needs a correction.

Yes, in 2020, the US economy lost 9.4 million jobs. This is the worst result since the beginning of accounting in 1939. However, everything will radically change in 2021! According to IHS Markit, US employment will increase by 6.7 million new jobs. Oxford Economics expects +5.8 million new jobs, University of Michigan - +5.3 million. In any case, it will be more than in the record employment rise in 1946 (+4.3 million).

Dynamics of US employment

Source : Wall Street Journal

The recovery of the labor market is a sign of the US economic rebound. If so, the US economy, along with the Chinese one, will push the global GDP up, increasing the global risk appetite, and encouraging sell-offs of safe-havens. The current [EURUSD][1] correction is a good chance to enter long-term purchases at reasonable prices.

What is happening in the market? Why are the [S&P 500][2] and the [EURUSD][1] going in the opposite directions? The stock index is rising amid the expected additional fiscal stimulus. Following a weak jobs report for December, Joe Biden promised the Americans to spare trillions of dollars on a new aid package. This results in the growth of equities and Treasury yields amid the expectations of new loans. However, suppose the Treasury yield rally continues. In that case, it will press down both the S&P 500 (the index will start to look overvalued given the income discounted model) and the rate-sensitive sectors of the US economy.

Weekly [EURUSD][1] trading plan

The above scenario is not what the Fed wants. I think the central bank’s officials should sound dovish. Federal Reserve Vice Chairman Richard Clarida __ says he doesn’t see a QE pullback anytime this year  e ven though he expects growth to accelerate. I expect other Fed officials to continue their dovish stance and the Treasury yield to fall. If so, buy the [EURUSD][1] at the breakout of the resistances at 1.2225, 1.2285, and 1.2305.

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