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Euro price forecast 18 January 2021

2021-01-18

2021-01-18

How long will the EURUSD be falling? Forecast as of 18.01.2021Dmitri Demidenko

What will signal the end of the [EURUSD][1] correction? The ECB meeting? Joe Biden’s inauguration? The Fed meeting? Each of these events could discourage euro bears. Let us discuss the Forex outlook and make up a trading plan.

Weekly Euro fundamental forecast

The US stock market is to face turmoil amid the US corporate earnings reporting season. The euro-area economy is likely to slide into a double-dip recession, and the ECB could discuss a possible monetary stimulus expansion at the meeting on January 21. The new Treasury secretary Janet Yellen will make clear the U.S. doesn’t seek a weaker dollar. The [EURUSD][1] bulls are discouraged, and the pair featured the worst weekly drop since October. After all, there is a good chance to buy when everyone else is selling.

In the week ended January 12, the US hedge funds boosted their dollar shorts up to the highest levels since 2018. Of course, many former [EURUSD][1] bulls, scared by the correction, turned into bears. However, Goldman Sachs still suggests that the dollar is overvalued, the Treasury nominal and real yields are low, and the global GDP should rapidly recover this year. All these factors will press the US dollar.

Dynamics of USD and dollar speculative positions

Source : Bloomberg

Of course, when the consensus forecast is clear, and the greenback net shorts are so high, the [EURUSD][1] correction must start. Nonetheless, the majority is not always correct. To resume the uptrend, the pair should first get rid of the ballast. The current information environment encourages doubting traders to exit longs. When they sell, somebody buys, don’t they?

In my opinion, the leading risk factor for the euro in the next week or two may be the drawdown of the [S&P 500][2] . In terms of P/E, the stock index is overvalued (22.65 with an average of 17.84 over the past 5 years), and the US corporate earnings reporting season will force some bulls to exit the longs. Janet Yellen’s speech on January 19 should also be associated with the White House’s desire to prevent turmoil in the US stock market. If the Treasury nominee abandoned the strong dollar policy, the panic would push the greenback up and crash the [S&P 500][2].

I do not think the ECB will discuss the QE expansion amid the euro-area double-dip recession. Yes, the ECB officials used to hint at an additional monetary stimulus if the situation deteriorates and there are new lockdowns. However, the bond purchases’ monthly pace decreases, and Bloomberg experts expect the euro-area GDP to rapidly rebound in the second quarter. Furthermore, Christine Lagarde, ahead of the ECB January meeting, says it is not the right time to discuss the tightening (!) of the monetary policy yet.

Weekly [EURUSD][1] trading plan

Obviously, the [EURUSD][1] correction is still likely to develop. I am interested in the moment when the major currency pair will stop falling. Will it be the ECB meeting or the Fed meeting? The euro may resume rising after Joe Biden’s inauguration. The market should return to the normal state after the president-elect assumes the duties of the position. In this case, the US dollar will lose one of its primary benefits – uncertainty caused by Trump. I won’t recommend catching falling daggers, so I suggest entering buy trades only after the euro closes above the key resistance levels of $1.208, $1.2125, and $1.215.

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