Euro price forecast 21 January 2021

2021-01-21

Euro reads between the lines. Forecast for 21.01.2021Dmitri Demidenko

Investors do not expect anything new from the European Central Bank. This fact, as well as the return of the dollar bears and pleasant surprises from the euro-area economy, could encourage the [EURUSD][1] bulls to go ahead. Let us discuss the Forex outlook and make up a trading plan.

Fundamental Euro forecast today

People, who can earn money, can read between the lines. The US new administration and Joe Biden may suggest an unwillingness to weaken the dollar. However, the very fact of Janet Yellen’s appointment to theTreasury Secretary gives the green light to the greenback sellers. At the press conference following the ECB’s January meeting, Christine Lagarde may repeat the mantra that the central bank is closely monitoring the euro exchange rate. However, the repetition of the previous wording will most likely contribute to the [EURUSD][1] growth. It is simply because the ECB, after the pair’s correction, has fewer reasons to worry about the euro’s appreciation than in December.

Dynamics of USD index

Source : Bloomberg

The [S&P 500][2] bulls correctly interpreted Joe Biden’s call for national unity. The new US president is preparing Congress to adopt the new $1.9 trillion fiscal stimulus package. In addition to the positive corporative reporting, this fact allowed the US stock index to hit a new all-time high. According to FactSet, as of January 20, actual earnings data were better than expected by 88% of companies reporting. Besides, investors believe in the rebound of the US economy in the second quarter, so the US stock market’s bullish sentiment is natural.

History knows only a few examples of the [S&P 500][2] fall during economic booms. In 1946, after a short downturn, investors feared that the economy would repeat the recession of the 1930s and sold stocks. In 1980, during a short-term recovery in the double-dip recession, the stock index fell as the Fed tried to mitigate excessive inflation growth. A drop in the [S&P 500][2] during a time of GDP growth is rare. So, investors naturally stick to a strategy of buying the stocks on the corrections and selling the dollar on the price rise. The EURUSD current correction seems to be just the rebalancing of the large investors’ positions.

The ECB passive attitude will support the recovery of the euro uptrend. Investors don’t expect anything new from the central bank, so they should focus on Christine Lagarde’s press conference. Not long ago, the ECB president supported the central bank’s forecast for a 3.9% growth of the euro-area GDP in 2021 following a decline by 7.3%. She said that it is too early to discuss the ECB monetary policy tightening, and the ECB is monitoring the euro’s exchange rate. She is likely to repeat the same on January 21. The Central Bank has nothing to surprise investors, and the fact that the [EURUSD][1] correction reduces the need for verbal intervention, on the contrary, may strengthen the euro.

Dynamics of [EURUSD][1] and nominal euro effective exchange rate

Source к: Nordea Markets

[EURUSD][1] trading plan for today

I do not think the ECB will expand the QE. The euro-area economy adjusts to the pandemic and improves its performance. The US dollar bears go ahead, and the [EURUSD][1] bulls could be only discouraged by slow vaccination. The EU, where 1.4% of the population have been inoculated, is behind the UK (7.1%) and USA (5%). However, the progress in the vaccination campaign supports the euro. If the euro breaks out the resistance at $1.215, it can be the reason to buy.

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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