Euro price forecast 8 February 2021

2021-02-08

Euro sees light at the end of the tunnel. Forecast as of 08.02.2021Dmitri Demidenko

The [EURUSD][1] surge seems to result from a weak US jobs report. However, the reasons are more complex. Let us discuss the Forex outlook and make up a trading plan.

Weekly euro fundamental forecast

Vaccines are good, but what if the economic recovery depends on more than just them? According to the University of Michigan research, COVID-19 is a seasonal coronavirus, with a peak in late January - early February. It is the reason for a decline in the number of coronavirus cases, isn’t it? It takes time to develop immunity using Pfizer or other companies’ vaccines, and the epidemiological situation is already improving. It is also true for those countries where the vaccination campaign is slow. If so, is it time to buy the euro?

Investors remember the middle of 2020 when lifting a more severe lockdown than in the US resulted in a rapid rebound of the European economy and laid the foundation under the [EURUSD][1] uptrend. History repeats itself, and if within the next four or six weeks the euro-area countries begin to lift restrictions, deferred demand will push GDP up. Considering that the pair got rid of ballast (net shorts for the US dollar against six main competitors dropped to a seven-week low), it’s time to bet on the euro.

Dynamics of GDPs in USA and euro area

Source : Nordea Markets

Furthermore, the speeches of the ECB officials should support the euro uptrend. According to Christine Lagarde, the central bank remains convinced that 2021 will be the year of the euro-area economic recovery. The GDP rebound is delayed but not canceled. The Governor of the Bank of Italy, Ignazio Visco, believes that Italy’s economy should rebound in spring. Due to the pandemic, Italian GDP fell by 8.9%, and the national debt rose to 160% of the economy’s size. A political crisis has erupted in the country, which can be overcome with Mario Draghi’s help. __

Markets still rely on the former ECB president, who could drop the euro by just a single word. The yield spread on Italian and German bonds dipped below 1%, indicating a decrease in political risks. If Super Mario manages to create a government with a solid parliamentary majority, the money will flow into Italy.

Dynamics of Italy-Germany Bond Yield spread

Source : Financial Times.

A formal reason for the [EURUSD][1] surge at the end of the first week of February has become the weak report on US employment. Joe Biden announced that the US economy still suffers from a recession, and the $1.9-trillion fiscal stimulus is necessary, which resulted in the [S&P 500][2] rally. At the same time, investors reduced the dollar longs amid the concerns that it will take the US economy longer to recover.

Weekly [EURUSD][1] trading plan

However, I believe that the reasons for the euro rise are more complex. The seasonal nature of COVID-19 and the ECB’s confidence that the euro- area economy will rebound, although later than expected, encourages investors to expect that the [EURUSD][1] uptrend will resume. I think it’s time to stop selling the pair and think only about buying. The euro rally will not be fast and easy, but the single European currency should still grow in price. My suggestion to buy the euro when the price reaches the [zone of $1.195 - $1.2][3] has been correct. We shall expect the breakout of level $1.208. It is desirable that the bulls do not break out the level at the first try. A repeated successful attack is usually a more reliable signal for opening positions.

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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