Euro price forecast 15 February 2021

2021-02-15

Euro: Titanic is not going down. Forecast as of 15.02.2021Dmitri Demidenko

The [EURUSD][1] bulls could have been desperate because of the severe economic crisis in the euro area and Italy’s political turmoil. However, Mario Draghi and a potential inflation rise suggest a more optimistic outlook. Let us discuss the Forex outlook and make up a trading plan.

Weekly euro fundamental forecast

In recent years, investors have expected the central banks to act according to the principle ‘self comes first’. They ease monetary policies under the pretext of fueling inflation, rejecting to admit that they take part in the currency wars. Although, the world’s leading central banks actually manipulate currencies. As a result, Forex rates have stopped floating. They are drowning. However, when the central banks’ presidents, whether current or former, begin to act like a single fist, it is extremely difficult to resist them. Mario Draghi’s appointment as Prime Minister of Italy, Janet Yellen’s statement about the commitment of the Biden Administration to multilateralism, and the hawkish tone of the Bundesbank president, Jens Weidmann, allowed the [EURUSD][1] bulls to win their positions back quickly.

Italy is notorious for the turmoil, both political and economic. Even before the global crisis, Italy, torn apart by political disputes, was in a deep depression, and COVID-19 only exacerbated existing problems. One of the deepest recessions in the EU contributed to the growth of Euroscepticism, which put pressure on the [EURUSD][1]. And now Draghi comes to power; he is famous for saving the euro and clearly sees the European Union’s future. Mario Draghi is supported by the ECB, which appears to be targeting the yield spread between Italian and German bonds, and by the European Recovery Fund, which should provide more than € 200 billion to Rome.

Dynamics of Italy-Germany bond yield spread

Source : Nordea Markets

The former Fed Chair, Janet Yellen, has returned to big politics, which is also a significant event for the global economy. At her first meeting of G7 ministers, she announced the US emphasis on multilateralism. This increases the chances of solving complex issues such as climate, digital taxes, and aid to developing countries and contributes to globalization and international trade growth. Due to Donald Trump and his trade wars, global trade plunged, which negatively affected export-led economies’ currencies. In particular, the euro suffered the most.

Furthermore, Jens Weidmann has discouraged the [EURUSD][1] bears. The Bundesbank president said that German inflation in 2021 could grow above 3% and warned that monetary policy should be tightened if the price forecast requires it. The ECB hawks, pressed by Mario Draghi, are encouraged by Christine Lagarde, which is also good news for the euro. And even though investors believe that Germany’s CPI surge from -0.7% to + 1.6% in January is a temporary phenomenon, the real data can be different. The seasonal recession of COVID-19, vaccinations, and the opening of economies after the lockdown, according to Nordea Market, will allow the euro-area economy, which is compared with the Titanic, to rise by 12.5% on an annual basis. The inflation rate will grow along with the GDP.

Dynamics of euro-area GDP

Source : Nordea Markets

Weekly [EURUSD][1] trading plan

Therefore, easing political risks in Italy, the abandonment of the US protectionism, and the ECB hawks support the [EURUSD][1] bulls. The correction to the level of 1.208, [as expected][2], allowed to open longs with the targets at 1.221 and 1.225. I recommend holding the long trades up.

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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