Euro price forecast 1 February 2021

2021-02-01

What’s stopping dollar? Forecast as of 01.02.2021Dmitri Demidenko

A faster vaccination in the USA than in the euro-area supports the greenback. However, something is stopping the dollar rally. What exactly? Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Monthly US dollar fundamental forecast

The US policymakers in Congress, who approve fiscal stimulus plans, and investors, who are buying out stocks, have different goals (the government wants to support the US economy, traders want to make money); however, they have something in common. Low interest rates. On the one hand, they help reduce debt-servicing costs; on the other hand, low rates mean that the US securities market bubble is still unlikely. The fundamental estimates of stock indexes are not overvalued; the US stocks and risk appetite have room to grow, which hinders the US dollar.

Most previous recessions in the US happened because the Fed took away the punch bowl in the middle of the party. The central bank hiked the interest rates, which drew up the Treasury yields, which resulted in the [S&P 500][2] overvaluing, ending up in deep corrections. 2020 was an exclusion, and the Treasury rates didn’t grow. The current economic downturn results from the pandemic.

Dynamics of [S&P 500][2] and US bond yield

Source : Nordea Markets

Of course, the stock index could collapse again if, for example, vaccines do not help defeat COVID-19, but as long as the US stock market is bullish, the [EURUSD][1] correction shouldn’t be deep. At the same time, the slightest signs of an improvement in the situation in the eurozone economy will send the euro up. A typical example was the euro- dollar rise amid the unexpected expansion of the GDP of Germany and Spain in the fourth quarter. If the euro-area economy has adjusted to the pandemic, isn’t it time to buy the euro?

Hedge funds stick to the idea that the [EURUSD][1] uptrend should recover as vaccines are introduced and the COVID-19 is being defeated, which evident from the fact that USD speculative long positions are around multi-year lows. Goldman Sachs says the vaccine company’s problems did not affect his views. The bank remains confident that the overestimated greenback, low nominal and real rates in the United States, and the global economy’s recovery will support the [EURUSD][1] rally.

Dynamics of US dollar speculative positions

Source : Bloomberg

I would also like to believe that a positive scenario based on a victory over the pandemic will come true, and the euro will reach $ 1.25 in the first half of 2021. However, according to UBS research, at the current rate of vaccination, only 10% of the world’s population will be inoculated by the end of 2021. By the end of 2022, this figure will increase to 21%. The global economic recovery could be uneven. Therefore, the greenback could benefit from faster GDP growth in the US than in other countries.

Monthly [EURUSD][1] trading plan

Time will show the efficiency of suggested trading scenarios. In the meanwhile, level 1.208 is a significant level for the [EURUSD][1]. If the price breaks out level1.208 downside, it could continue falling to 1.204, 1.199 and 1.195, where, due to the limited potential for correction, the traders are likely to buy out the pair. If the bulls drive the price above 1.218 and 1.221, the medium-term consolidation scenario in the range of 1.208-1.238 I described in [early][3] January will become the main scenario.

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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