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Euro price forecast 19 February 2021

2021-02-19

2021-02-19

Euro benefits from carry trades. Forecast as of 19.02.2021Dmitri Demidenko

The events of the beginning of the year look like the taper tantrum of 2013, but the Fed hasn’t yet commented on the situation. The US central bank is likely to let the US economy overheat, increasing the chance of the [EURUSD][1] uptrend recovery. Let us discuss the Forex outlook and make up a trading plan.

Weekly euro fundamental forecast

The rising rates of the global debt market concern not [only me ][2]but also institutional investors and central banks. The minutes of the January meetings of the Fed and the ECB show that the FOMC expresses much more concern about financial instability than Jerome Powell, who says the economic risks are moderate. The ECB board tried to calm the markets by stating that the evolution of real, not nominal, rates matters to monetary policy. In January, the issue was discussed, most likely initiated by Isabel Schnabel, who warned that higher yields could hit the stock market.

According to MUFG Bank, the fact that Treasury rates are significantly higher than a few days ago may force investors to reconsider their risk appetite. In the past few months, low bond yields encouraged investors to trade stocks. JP Morgan notes that if there is anything to worry about, it is the high share of emerging markets’ assets in investment portfolios.

The events of the beginning of 2020 look like the taper tantrum of 2013. However, the Treasury yields were rising because of the Fed’s announcement of future tapering of the QE. At present, the US yields are growing amid the hopes for a rapid recovery of the global growth and inflation rise. The surge in bond yields in the US and Europe presses down carry trades by narrowing spreads. Traders are worried and exit trades, which strengthens funding currencies, such as the euro and the greenback, and results in the [EURUSD][1] consolidation.

Dynamics of bond yield spread

Source : Bloomberg

Euro strengthens amid the Governing Council members’ comments, expressed in the minutes of the ECB January meeting. According to the ECB board members, the measures taken in December need more time to take full effect. Such speeches suggest that, even if European bond yields continue rising, the ECB will hardly react by the QE expansion.

Concerns and fears are not the same as real events. Although [EURUSD][1] tends to consolidate in the short-term, the euro medium-term outlook remains bullish also because the Fed and the Treasury are likely to let the US economy overheat. Janet Yellen’s calls for Congress to provide massive stimulus and her status as an absolute insider with the Fed suggest that the Federal Reserve will maintain the ultra-easy monetary policy for a long time and act according to the principle of “spend now, pay later,” offering to fund the debt at the expense of the central bank.

Weekly [EURUSD][1] trading plan

This cooperation of the Fed and the Treasury already took place in the 1950s, when US GDP grew by 8% -10% three times in a decade. If history repeats itself, the US could be the only driver for the global economic recovery. If so, investors will again be interested in risky assets, the dollar will fall, and the [EURUSD][1] will reach 1.25. In the meanwhile, the euro-dollar tends to consolidate in the range of 1.2-1.22. I recommend traders to focus on intraday trading strategies.

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/will-red-line-stop-dollar-forecast-as-of-17022021/