Euro price forecast 13 January 2021

2021-01-13

EURUSD: who blinks first? Forecast as of 13.01.2021Dmitri Demidenko

The drop in the Treasury yields proved the weakness of the [EURUSD][1] bears. Some of them went nervous and changed the sentiment. Was that shift sensible? Let us discuss the market outlook and make up a trading plan.

Weekly Euro fundamental forecast

The dollar lost the growth driver and started falling. After completing auctions for US Treasury bonds for $ 38 billion, Treasury yields went down, and the [EURUSD][1] price went up above the bottom of figure 22. As I expected, the rise of the US bond market rates, based on the greater offer amid the fiscal stimulus expansion, has been temporary. Everything goes back to the norm.

Dynamics of USD and 10-year Treasury yield

Source : Trading Economics

Perhaps the most remarkable feature of the USD rally in January has been the rejection of individual banks and investment companies’ previous bearish views. As I mentioned [earlier][2], Morgan Stanley and other major players have not passed the strength test. Deutsche Bank has announced it intends to exit greenback short trades as the fiscal stimulus has accelerated the US economy and will ease pressure on the Fed to keep the federal funds rate artificially low. JP Morgan noted that one of the main drivers of the US dollar weakening was the confidence that the Fed will long tolerate high inflation. Investors are less confident now.

Therefore, not only the ordinary traders got nervous, but experienced Forex analysts also did. So, do not be upset about the unsuccessful sales of [EURUSD][1]. I believe the euro-dollar will reach the level of 1.25-1.27 in the first half of 2021, although its rally won’t be so fast and easy as it was in November-December. The reasons for a potential short-term consolidation are both in the euro-area economy’s weakness and the increased volatility of the US stock indexes.

The second wave of COVID-19 and the lockdowns in Europe encourage experts to revise their predictions. Bloomberg suggests the euro-area GDP should contract by 4.1% in the first quarter, although it was earlier suggested that the indicator will grow by 1.3%. JP Morgan’s forecasts for the January-March period (current is -1%, previous is +2%) and UBS (-0.4% and +2.4%) are less pessimistic, but all analysts expect the recession to continues. This fact increases the pressure on the ECB in terms of the monetary stimulus expansion, which could weaken the euro ahead of the Governing Council meeting on January 21.

Bloomberg forecasts for euro-area GDP

Source : Bloomberg

Furthermore, excessively overestimated fundamental assessments and higher political risks due to a potential impeachment of Donald Trump and a delay of additional fiscal stimulus by trillions of dollars could start the consolidation of the [S&P 500][3]. Nonetheless, effective vaccinations will support the euro-area economy in the second and third quarters (up 4.8% and 3.1% according to Bloomberg estimates) and increase global risk appetite, which will continue pressing down the US dollar.

Weekly [EURUSD][1] trading plan

By and large, the [EURUSD][1] medium-term outlook remains bullish. However, the pair is likely to start a short-term consolidation in the range of 1.208-1.238. I recommend holding up the long trades entered at the level [of 1.2145][4].

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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