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Euro price forecast 3 February 2021

2021-02-03

2021-02-03

Euro got away with a black eye. Forecast as of 03.02.2021Dmitri Demidenko

Forecasts are good for breakfast but bad for dinner. Gloomy outlook suggested for the euro area and the euro may eventually play into the hands of [EURUSD][1] bulls. Let us discuss the Forex outlook and make up a trading plan.

Weekly euro fundamental forecast

Central banks’ presidents, current or former, are essential players in the game of world politics. For instance, Janet Yellen is appointed as US Treasury secretary. Or Italy’s head of state, President Sergio Mattarella,  asks Mario Draghi to settle down the country’s political crisis. President Mattarella invited Draghi after Italy’s left-leaning coalition government broke down and couldn’t put back together again. Mario Draghi saved the euro, but can he save Rome?

All of Europe has a stake in Italy’s economic fortunes, given its teetering national debt and its electorate’s mixed feelings lately about the European Union and the euro. Germany and other EU members agreed to support a massive European recovery fund largely to prevent Italy from sliding into a deep crisis. Italy’s economy contracted by nearly 9% in 2020, which is one of the deepest recessions in the eurozone.

Euro-area economy in Q4 2020

Source : Bloomberg

If we look at the economic state, the situation for the [EURUSD][1] bulls is close to despair. In 2020, the euro-area GDP contracted by 6.8%, which is much worse than a 3.5% decline in the USA. By contrast, China’s economy expanded by 2.3%. The IMF expects that the euro-area economy in 2021 will be 3.3% less than in late 2019. The US GDP, on the contrary, will be 1.5% up. Based on the current vaccination rate, the UK will inoculate 60% of the population by June, the USA – by October, France and Italy – by summer 2022, Germany and Italy – by 2023.

After all, forecasts are good for breakfast but bad for dinner. Reuters experts expected the euro-area economy to contract by 1.2% in the fourth quarter (ECB suggested a 2.2% decline), but the GDP was just 0.7% down. Germany and Spain surprised by the GDP growth, and Bloomberg analysts say that the eurozone recession in the first quarter won’t be as severe as it was earlier expected (4%). The eurozone economy adjusts to pandemic and lockdowns, the GDP downturn is not as deep as it was in April-June (11.7%), so the euro-area economy got away with a black eye.

History knows many examples when pessimistic forecasts, in fact, supported the currency. For instance, at the end of 2016, few believed that the eurozone would outpace the United States in terms of economic growth the next year, and it did so in 2017, which led to a 14% rise in [EURUSD][1]. Let’s not forget that the euro-area and China’s economies are related: the better is China’s economic performance, the better is for the export-led eurozone and the euro. German Chancellor Angela Merkel promised to vaccinate every German by the end of summer, which should encourage the euro buyers.

Weekly [EURUSD][1] trading plan

I do not recommend catching falling daggers. The excessive market pessimism suggests that the euro is undervalued, and the bulls can still restore the uptrend. One could consider buy trades if the [EURUSD][1] goes up above 1.208. Level 1.195 may not stop the bears. Meanwhile, hold down the short trades entered [in late January][2] but be ready to turn up at any moment.

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. www.liteforex.com/blog/analysts-opinions/the-fed-failed-mission-eurusd-forecast-as-of-28012021/