Euro price forecast 3 March 2021

2021-03-03

Euro is trapped in the illusion. Forecast as of 03.03.2021Dmitri Demidenko

While the ECB uses verbal interventions, the change in the Fed’s tone stabilizes the global bond market. How will it influence the EURUSD? Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly euro fundamental forecast

To solve the problem, one should know the causes. The ECB officials associate the drop in the euro-area bond yields with their announcements. However, they are wrong. The rally of the global bond market rates started in the USA amid the expectations of fiscal stimulus and rapid recovery of the US economy. It means the Fed, not the other world’s central bank, should solve the problem. A change in the FOMC officials’ tone has stabilized the bond market, discouraging the [EURUSD][1] bears.

Dynamics of bond yields

Source : Wall Street Journal

ECB Executive Board member Fabio Panetta said Tuesday that the jump in government-bond yields seen in recent weeks “is unwelcome and must be resisted.” The European Central Bank evaluates market conditions; it can intervene and change the scale of asset purchases. Vice President Luis de Guindos said the ECB has room for maneuver, and it has ammunition. The ECB has the flexibility to react to yield rise by changing the QE pace if necessary.

Verbal interventions seem to have become fashionable. The ECB officials may assume that their announcements discouraged the [EURUSD][1] bulls in January and clamped down on March’s bond sales. Nonetheless, the euro failed to continue the rally amid a slow vaccination process in the euro area and the economic expansion divergence. The global bond market has also stabilized because of different reasons.

Taking into account the Fed’s significance in fighting the recession, it is natural that investors pay attention to the speeches of the Fed’s members. A couple of days ago, I noted that to stop the rally in Treasury yields, the Fed would only need to express concern about the negative impact of rising US debt market rates on financial conditions. As soon as Governor Lael Brainard expressed concerns about the Treasury yield rally, the bond sell-offs slowed down, and the [EURUSD][1] price went up.

It should be noted that the current levels of Treasury yields are attractive to foreign investors. Currency-hedged Treasury yields have hit the highest level since 2017. That is why foreign investors are willing to buy US bonds, which calms down the market.

Dynamics of currency-hedged Treasury yields

Source : Bloomberg

Of course, the bond market has not been fully stabilized. Investors are concerned about two questions. Will the Treasury yield surge amid the US strong PMI and employment data, strengthening the US dollar? Will other FOMC members change the tone in their speeches in the first week of March?

Weekly [EURUSD][1] trading plan

Even if the Treasury yields continue rising, the euro bulls should not be discouraged; it is only essential that they should not grow as fast as they did in late February. The [EURUSD][1] has consolidated at the lower border of the consolidation range 1.2-1.22, so it could resume the uptrend. Continue focus on purchases, closely monitoring the tests of the resistances at 1.21 and 1.2125.

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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