Euro price forecast 11 March 2021

2021-03-11

Euro is being fed. Forecast as of 11.03.2021Dmitri Demidenko

Although the ECB wants to control everything, it can’t affect the euro trend. The major currency pair is driven by the US securities market and the euro-area economy’s state. The euro won’t be steadily growing until the euro-area economy recovers. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly euro fundamental forecast

While investors anticipate the ECB meeting, the stabilization of the US Treasury yield allowed the [EURUSD][1] to go up a little. As I expected, the House’s adoption of the $ 1.9 trillion fiscal stimulus plan enabled some traders to exit Treasury shorts, which pressed down the yield. The [Dow Jones][2] Index hit a new all-time high, the11th in a row in 2021, while the [Nasdaq Composite][3] dipped slightly.

The profit from blue chips and losses yielded by tech stocks is a typical feature of the current year. The situation was opposite in 2020; the markets were growing on the expectations, which allowed the [Nasdaq Composite][3] to dominate. Now, it is time to buy the facts. The Wall Street Journal experts’ median gauge suggests that the US GDP will expand by 5.95% in 2021, which is the best rise since 1983, when the economy grew by 7.9%.

Dynamics of US stock indexes

Source : Wall Street Journal

The main reason why the forecasts were revised up is the adoption of the $1.9-trillion fiscal stimulus by Congress. Analysts say the stimulus will accelerate the US inflation to 2.48% by the end of this year and add 514,000 new jobs on average each quarter during next year. Previous aid packages boosted the US budget deficit in October-February to $1trillion, up from $624 billion in the same period a year earlier.

The US needs money and is willing to borrow it. BofA Global Research estimates that the supply of Treasury bonds with maturities ranging from 2 to 30 years will grow to $ 2.8 trillion in 2021.In 2020 it was $ 1.7 trillion, in $ 2019 - $ 990 billion. Higher yields are needed to lure investors to the auctions, so the Treasury yield is unlikely to stop at current levels near 1.5-1.6%. The US yield rally causes turmoil in the bond markets of other countries, making central banks worry.

The [EURUSD][1] traders expect the ECB to express its worries. At the ECB meeting on Marc h11, the Governing Council should decide if the bond yield growth poses a threat to the euro-area economy or reflects the optimism about a soon economic rebound. A lower weekly pace of new asset purchases under the pandemic program should not confuse investors, the gross purchases of securities are increasing.

Dynamics of bond-buying and redemptions under PEPP

Source : Bloomberg

Christine Lagarde must be cautious not to shake the markets, as in the case of the announcement that the central bank should not cover yield spreads. The tightening of the euro-area financial conditions has not yet taken place, so I do not think that the ECB’s concerns will stop the short-term euro growth. Its reasons lie outside the euro area.

Weekly [EURUSD][1] trading plan

Therefore, I believe that it is the US bond market that will define the [EURUSD][1] trend. The stabilization of the Treasury yields could push the euro up to $1.199 or even $1.2035. However, without the signals of the euro-area economic recovery, the euro uptrend won’t resume. Thus, I recommend betting on the shorts on the price rise.

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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