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US dollar price forecast 1 March 2021

2021-03-01

2021-03-01

Dollar gives little to pay the debts. Forecast as of 01.03.2021Dmitri Demidenko

Investors are not satisfied with too low yields at the auctions. Amid the new fiscal stimulus of $1.9 trillion from Joe Biden, it suggests the Treasury yields rally should continue. How will it affect the [EURUSD][1]? Let us discuss the Forex outlook and make up a trading plan.

Weekly US dollar fundamental forecast

When the US dollar is following the yields on the US government bonds, it is strengthening against the basket of major currencies amid the sale of $21 trillion in the Treasury market, the most significant sell-off since November. According to Jefferies International, investors faced the largest debt deficit at the end of February since the taper tantrum in 2013. The need to balance portfolios at the end of the month stabilized the market. How long will the balance continue?

At the end of 2020, Bloomberg’s experts expected the US 10-year Treasury yield to grow from 1% to 1.5% amid the US economy’s recovery, but few could have imagined that everything would happen so quickly. When debt rates rise, in theory, stockholders should not worry. Rapid GDP growth tends to lead to higher corporate profits, which should support the [S&P 500][2]. It seems that the rally in Treasury yields is not only due to the belief in a rapid recovery of the US economy, as the FOMC officials claim. And the surge in bond market volatility suggests that it is too early to give up on bond sales.

Dynamics of US bond market volatility

Source : Bloomberg

The main drivers for the Treasury yield rally were the low demand at recent auctions, during which primary dealers had to buy out about 40% of the issue volume, with average indicator values being twice lower recently, and the concerns that the Fed will not fulfill its promises. As the House approved President Biden’s $1.9 trillion stimulus plan with a 219-212 vote, the issue volume should further increase. If the demand is low, the will be more new auctions. Investors are not satisfied with low yields, they demand higher ones, which will support the Treasury yield rally.

Investors are also concerned that if the Fed holds the ultra-low interest rates for too long, the inflation acceleration will force it to start monetary normalization too aggressively. The derivatives market expects a federal funds rate hike in early 2022, more than a year earlier than the latest FOMC forecasts.

Therefore, the US bond market will determine the [EURUSD][1] trend in early March. The publication of the US PMI data and jobs report and the speeches of the Fed officials will inflate the yields. If FOMC officials continue to argue that the Treasury yields rise results from the expected strong economic recovery, the rally will continue. In order to hold back the sales in the bond and equity markets, Jerome Powell and his colleagues need to express concern that too quickly rising yields will tighten financial conditions.

Weekly [EURUSD][1] trading plan

I believe if the US bond market stabilizes, the [EURUSD][1] will continue to consolidate in the trading range of 1.2-1.22, defined in late [February][3]. It is still relevant to buy if the price goes down to the lower border of the trading range and sell if the price rises.

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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  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. my.liteforex.com/trading/chart?symbol=SPX&returnUrl=true
  3. www.liteforex.com/blog/analysts-opinions/euro-benefits-from-carry-trades-forecast-as-of-19022021/