Logo

Posts

US dollar price forecast 8 March 2021

2021-03-08

2021-03-08

Dollar is a tough nut to crack. Forecast as of 08.03.2021Dmitri Demidenko

A strong reading of the US jobs report for February results in a new wave of sell-offs of the US treasuries and the EURUSD. Is the euro uptrend broken? Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly US dollar fundamental forecast

Jerome Powell is a tough nut to crack. The US bond market continues to test the Fed’s strength. A strong report on the US employment for February has sent the Treasury yield above 1.6%, the highest level since February 2020, strengthening the US dollar. The [EURUSD][1] rate went down in a momentum below 1.9. Only the [S&P 500][2] price rise prevented the euro bears from driving the price lower.

Investors wonder if the Treasury yields are high enough to encourage the Fed to take active steps. The US unemployment rate in February was down to 6.2%, nonfarm payrolls added 379,000 new jobs, and the January data have been revised up. Therefore, the Fed should start speaking about monetary normalization. On the other hand, there are 9.5 million fewer jobs in the United States than before the pandemic. The labor market has a long way to recover, and the Fed prioritizes financial conditions when making decisions. The financial conditions in the US suggest that the Fed could still remain passive for a long time.

Dynamics of financial conditions and 10-year Treasury yield

Source : Bloomberg

The latest Commodity Futures Trading Commission data show that the US bond market faced the worst sell-off ever in the week ended March 2. Nonprofit traders were exiting long positions at a record pace. According to TD Securities, net longs fell by $ 45 billion. As 10-year Treasury yield increased by 45 bps, the US equity market capitalization decreased by $ 4 trillion from its high in mid-February.

The increased popularity of the US assets and the growing demand for the greenback as a safe-haven encourage the [EURUSD][1] bears to go ahead. Based on the differences in the interest swap market, the euro is considerably overvalued against the US dollar.

**Dynamics of[EURUSD][1] and interest swaps difference **

Source : Nordea Markets

It seems the euro uptrend has reversed down. However, I still believe the [EURUSD][1] bulls will regain the impulse because of the strength of the US and Chinese economies and the acceleration of vaccinations in the EU. Even if the euro resumes the uptrend later than previously expected, the second quarter may be radically different from the first. Indirectly, the change in the balance of power in the April-June quarter is indicated by the growth of US imports of goods and services by 1.2% MoM in January and the record expansion of Chinese exports in February. Furthermore, the US and the EU decided to suspend import tariffs in the Airbus-Boeing case.

Weekly [EURUSD][1] trading plan

After all, the US dollar is the Forex winner as of now. The greenback growth is especially strong against the non-commodity currencies. By and large, traders should enter short-term sell trades as the [EURUSD][1] bulls failed to consolidate the price above the resistance levels of 1.1935 and 1.1975.

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:

{{value}}

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

  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. my.liteforex.com/trading/chart?symbol=SPX&returnUrl=true