Euro price forecast 22 February 2021

2021-02-22

EURUSD: chained together. Forecast as of 22.02.2021Dmitri Demidenko

The Treasury yield rally and the divergence in the economic expansion of the USA and the euro-area do not send the [EURUSD][1] down yet. What is the reason? Where will the euro-dollar go next? Let us discuss the Forex outlook and make up a trading plan.

Weekly euro fundamental forecast

The USA manages the crisis successfully: the number of new COVID-19 is declining, vaccination is progressing, and the economic surprise index, which shows the difference between actual and projected data, featured the best rise since late 2017. As a result, the Treasury yield is rallying up, which, however, doesn’t strengthen the US dollar, as it did in January.

Dynamics of US economic surprise index

Source : Bloomberg

It would seem that an increase in the attractiveness of the US assets, along with the growth-gap between the US and the euro area, should have started the [EURUSD][1] correction. The problem is that the US, having a large amount of debts, needs to lure foreign investors to auctions. This is achieved in two ways: by increasing the yield or weakening the greenback. It looks like in February, both methods are applied due to the approaching $ 1.9-trillion fiscal stimulus. In addition, if bond rates are growing not only in the United States but also in Europe, and carry traders, as well as emerging markets’ currencies, are challenged in this situation, then why would the dollar grow against the euro?

The euro bears could have benefited more from the Treasury yield rally but for the Fed dovish stance. Ahead of Jerome Powell’s speech to Congress, there was a message on the Fed website that monetary policy will continue to support the economy until the recovery is complete. New York Federal Reserve President John Williams said he is not worried about the sharp rise in Treasury yields, as it is most likely associated with the expectations of rapid growth in US GDP.

Different rates of economic expansion are an essential driver of forex pricing. And the fact that the European Commission expects a double-dip recession in the euro area, and JP Morgan raises the forecast for US GDP to 6.4% in 2021 and 2.8% in 2022 should support the greenback. However, the [EURUSD][1] is not falling, which suggests that this advantage of the euro bears is underestimated.

Dynamics of [EURUSD][1] and economic growth expectations

Source : Nordea Markets

Investors understand that the world economies are chained together because of the pandemic. The faster is the US economic recovery, the more chances the euro-area economy has to rebound. Besides, traders remember the events of mid-2020, when the euro-area GDP rose sharply amid the lifting of the lockdown. Nobody wants to be caught off guard if it happens again.

Weekly [EURUSD][1] trading plan

Therefore, the [EURUSD][1] bulls have the advantages to outperform their opponents. The major currency pair is likely to continue consolidation until there are signals of the euro-area economic recovery. The matter is in the range of the trading channel. If the price breaks out the resistance at 1.215, it should grow towards 1.221 and 1.224 or even higher. Otherwise, if the price doesn’t consolidate above level 1.215, it could go down to 1.208 and 1.204.

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.

Rate this article:

( {{count}} {{title}} )