US dollar price forecast 10 March 2021

2021-03-10

Dollar makes waves. Forecast as of 10.03.2021Dmitri Demidenko

The EURUSD drop came as a surprise for financial markets, as the greenback seemed an outsider in 2021. How will the change in the market sentiment affect the euro? Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly US dollar fundamental forecast

What is good, what is bad? Is the US Treasury yield rally bad for the global economy? The US stock indexes are stable, and the VIX is down, the Fed doesn’t express any concerns, the financial conditions in the US are improving. Therefore, the US bond yield rally doesn’t do any harm. However, increased demand for US assets strengthens the US dollar and leads to the capital outflow from emerging markets, tightening the financial condition in these regions.

The OECD revised up the projection for the global economy’s expansion in 2021 from 4.2% to 5.6%. The primary reason is a faster recovery of the US GDP than it was earlier expected. The forecast for the US GDP is increased to 6.5%, almost twice as much as the previous estimate, being the highest gauge since 1984 due to the effective introduction of vaccines and massive fiscal stimulus. The OECD suggests the $1.9-trillion aid package from Joe Biden should add 1% to the global growth amid the increase in the US demand.

OECD forecasts for world’s leading economies

Source : Bloomberg

However, the OECD warns that higher yields on US Treasuries could result in the capital outflow from emerging markets, where vaccination spread is slower than in the advanced economies. This will slow down economic recovery in these regions, which is already unstable. Investors continue to draw parallels with 2013 and 2018 when the taper tantrum triggered by the Fed and the US-China trade war resulted in turmoil in emerging markets. In both cases, the greenback has strengthened.

Nowadays, the amount of US dollar shorts exceeds what it was 3 and 8 years ago. In early 2021, investors expected the USD to weaken significantly. However, the USD has been rising during each of the three months of the year. As a result, hedge funds have cut their greenback shorts against major currencies by $6 billion, but $25 billion in net longs are still held.

Dynamics of USD and US dollar speculative positions

Source : Bloomberg

Thus, the divergence in the economic growth in the US and other regions, as well as an increase in the attractiveness of US assets, support the current greenback strengthening. Until the euro-area economy begins to show signs of recovery, the [EURUSD][1] will continue falling. Yes, the euro has stopped declining as the demand for tech stocks increased and the US bond market rates stabilized, but the growth in Treasury yields is an objective process. It does not affect financial conditions, does not scare investors (the VIX fear index remains low), and does not cause concern for the Fed.

Weekly [EURUSD][1] trading plan

The [EURUSD][1] bulls could only hope for the faster vaccination in the EU, associated with increased PMI and euro-area exports due to China and the USA. Until this happens, it makes sense to sell the euro-dollar on the price rise towards 1.193 and 1.199.

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}} )