Euro price forecast 11 February 2021

2021-02-11

Euro is given green light. Forecast as of 11.02.2021Dmitri Demidenko

A seasonal decline in the number of COVID-19 cases, vaccination, and global economic recovery driven by the US and China give the green light to the [EURUSD][1] bulls. Let us discuss the Forex outlook and make up a trading plan.

Weekly euro fundamental forecast

The market is like a road. If something goes not according to the plan, some people are stepping back. The primary investment strategy now suggests that, amid universal vaccination, mass fiscal stimuli, and ultra-easy monetary policy, the US, along with China, will be the growth driver for the global GDP. If so, the risk appetite will be high, pressing down safe-havens, such as the US dollar. One of the signs of the US strength is the growing inflation rate. However, a poor reading of the US consumer price index discouraged some investors.

CPI and core inflation rose by only 1.4% in January, although there was much talk before the data release that the adoption of the $ 1.9 billion stimulus package would overheat the economy. The growing money supply, the Fed’s unwillingness to take away the punch bowl in the middle of the party, and the expected boom in consumer spending should have accelerated the US inflation. It is not the case now.

Dynamics of US inflation

Source : Bloomberg

An essential element of the global economic rebound is the Fed’s position. In December, the Federal Reserve projected the US GDP should grow by 4.2% in 2021, and the interest rate should be at the current level of 0%-0.25% at least through the end of 2023. Joe Biden’s massive fiscal stimulus and rapid vaccination should encourage the Fed to revise the forecast up. According to Oxford Economics, US GDP will grow by 5.9% this year, and the derivatives market expects the Fed to hike the federal fund rate at the end of 2022.

Dynamics of Fed and ECB interest rates and market expectations for

changes

Source : Bloomberg

In the current situation, it is imperative for the Fed that market forecasts do not go even higher, and Jerome Powell is doing everything possible to convince investors that the US central bank will not implement any changes in the monetary policy for a long time. According to the Fed Chair, the Fed’s members do not consider abandoning the economic assistance by raising the interest rates or pulling back on the QE. The Fed is still willing to put up with high inflation, as the inflation surge should be temporary. In the last decade, disinflationary forces have been affecting the global economy. The advanced economies spared no effort to reach the 2% target, but they failed. Will anything change after the pandemic? Powell does not think so.

By and large, the current market factors should support the euro growth. The Fed is not going to abandon its ultra-soft monetary policy, and the seasonal recession of the pandemic and vaccinations strengthen the hope for the rapid growth of the global economy. Furthermore, vaccinations are essential. According to Israeli scientists, a vaccinated person carries between 5% and 62% of the viral load. This means less serious illness and a reduced chance of transmission of COVID-19, which is extremely important both for the individual and humanity. Vaccination is also important for the global economy and investor plans.

Weekly [EURUSD][1] trading plan

In my opinion, the [EURUSD][1] bulls are given the green light as the investment ideas, based on the global economic rebound, popular in late 2020, are coming back to Forex. We can use the drawdowns to enter long trades with targets at 1.221 and 1.225.

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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