Euro price forecast 26 January 2021

2021-01-26

Euro has a bad feeling. Forecast as of 26.01.2021Dmitri Demidenko

The slow introduction of vaccines sets the [EURUSD][1] bulls back. There should start a correction down. Should the euro bulls step back? Or is it a chance to buy the single European currency at a low price? Let us discuss the Forex outlook and make up a trading plan.

Weekly euro fundamental forecast

If greed rules the market, the currency traders follow their doubts. The [EURUSD][1] doesn’t rise even amid the [S&P 500][2] rally and the drop in the US Treasury yields. The future doesn’t look as bright as it did in November-December. The pharmaceutical giant Merck’s refusal to develop its own vaccine and the statement by AstraZeneca that shipments to the EU will lag behind forecasts press down the euro.

Netherlands Bureau for Economic Policy Analysis reports that, at the end of 2020, the volume of international trade for the first time in several months exceeded the levels that took place a year earlier (+ 1.5%), which proves my Forex analysis to be correct. In November-December, the [EURUSD][1] was growing amid the optimism about a soon victory over the COVID-19, opening of the economies, and rebound of the global GDP and international trade. The main driver of the international trade growth in early December was industrial production, which was only 1.6% lower than at the end of 2019 in the euro area (5.4% lower in the US).

In January, it became clear that the vaccination is not as fast as expected, the euro-area countries extend lockdowns, and the GDP is not going to rebound. The Bloomberg leading indicators suggest that the economic activity is slowing down. The manufacturing PMI is the only indicator that should be up, but weak demand overloads the warehouses. It is not surprising that international trade is not growing.

Dynamics of economic activity

Source : Bloomberg

Therefore, the investing ideas of November-December do not work. The euro doesn’t grow, although the US stock indexes soar (investors even joke that a bear is not the one who sells the equities, but the one who has less than 75% of stocks in the portfolio). The drop in the US Treasury yields, which should potentially weaken the dollar, doesn’t support the euro. Investors buy the US government bonds as they doubt the approval of the $1.9 trillion fiscal stimulus package by Congress and the rebound of the US economy. Besides, low TIPS rates and growing inflation expectations create a favorable environment for tech stocks, which is proven by history.

Dynamics of Treasury yields

Source : Wall Street Journal

The only thing that holds back the [EURUSD][1] bears now is the potential dovish tone of the Fed. Jerome Powell is likely to refute the statements of individual FOMC members about the future tapering of QE. No one wants the taper tantrum of 2013 to repeat.

Weekly [EURUSD][1] trading plan

I still believe that the euro will reach $1.25. Humanity will defeat the pandemic, and the November plans will certainly come true. A little later. Meanwhile, Jerome Powell’s comments at the press conference following the FOMC January meeting could send the [EURUSD][1] down below the key support at 1.208-1.2085, starting a correction.

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.

Rate this article:

( {{count}} {{title}} )