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Euro price forecast 14 January 2021

2021-01-14

2021-01-14

Euro is up to the old tricks. Forecast as of 14.01.2021Dmitri Demidenko

Any trend needs a correction. The [EURUSD][1] bears are drawing the price down. However, the correction shouldn’t be deep unless there are problems with vaccination. Let us discuss the Forex outlook and make up a trading plan.

Weekly Euro fundamental forecast

The talks that the fiscal stimulus under Joe Biden will be $2 trillion turned the Treasury yields up. The US bond market rates are going up, the dollar is strengthening, and the [EURUSD][1] is again back to the key support 1.2125-1.2145. If the price breaks out the support, the correction should continue. The ECB again resorts to verbal interventions. Goldman Sachs recommends its clients to use the greenback to hedge against the drop of the S&P 500, which now looks overvalued. The stock options are too expensive, and the currency market can achieve the same results.

The Treasuries auctions have been over, the demand is satisfied, and the bond yields should be rolling down. The yields had been falling until Joe Biden’s advisers share details of the stimulus plan with their allies in Congress. The president-elect did not throw words to the wind, declaring trillions of dollars in aid to the US economy. In the document, which is to be presented to the general public on January 14, most likely, the amount of $ 2 trillion will appear. It means investors should expect more bonds to be issued, and the capital should flow from the secondary bond market to the primary market. If so, the bond yields will grow, and the greenback will strengthen.

The US bond yields are rising in January much faster than their German peers, pressing the [EURUSD][1] down. However, the rising inflation expectations are followed by an increase in the expected euro-area inflation. The hope for the rebound of the US economy, which will support the global GDP, as well as the euro-area economy, pushed the euro-area inflation expectations up to a level of 1.35%, the highest for more than a year. Will the ECB start monetary normalization soon?

Dynamics of bond yields in USA and Germany

Source : Nordea Markets

Christine Lagarde doesn’t think so. The ECB president insists on the forecast for the euro-area GDP growth by 3.9% in 2021. However, Lagarde says it is too early to tighten the monetary policy. The central bank monitors the euro-dollar rate, whose growth slows down inflation by reducing import costs.

The ECB’s verbal interventions and the central bank’s unwillingness to discuss any monetary tightening measures contrasts with the Fed’s hawkish comments, encouraging the [EURUSD][1] bears.

4 out of 18 FOMC members suggested winding down QE in January. In contrast, Fed Vice Chair Richard Clarida and three of his colleagues, including Lael Brainard, do not see the need to pull back on the Fed’s bond purchases. Investors expect Jerome Powell’s opinion, which will likely be announced on January 14th.

Weekly [EURUSD][1] trading plan

In my opinion, Powell’s dovish stance will not allow the [EURUSD][1] bears to draw the price below the support levels of 1.208 and 1.204. A deeper correction will develop if there are problems with the COVID-19 vaccination, which will question the forecast for the global GDP rebound in the second quarter. Until it happens, I suggest opening euro medium- term purchases on the price decline.

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