Euro price forecast 12 March 2021

2021-03-12

Euro is a Teddy bear. Forecast as of 12.03.2021Dmitri Demidenko

Hardly anybody expected the ECB’s dovish stance to drop the euro. The EURUSD is driven by the news from the US rather than from Europe. Where will the euro go ahead of the Fed meeting? Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly euro fundamental forecast

Christine Lagarde admits that the European bond yield rally resulted from the expectations of rapid growth in the US economy rather than a recovery in the eurozone. Therefore, the ECB’s announcement of the increased volume of the asset purchases under the PEPP will hardly drop the euro. The [EURUSD][1] follows the US stock market. The new high hit by the [S&P500][2] amid stabilization of Treasury yields means much more for the euro than hints from the European Central Bank of a significant increase in the pace of bond purchases.

The [S&P500][2] has hit a new all-time high amid several positive factors supporting the US economy. The tech stocks are rallying up, the number of US jobless claims has been down, the US household assets have risen to $130.2 trillion, the highest ever, and Joe Biden has signed the $1.9 trillion fiscal stimulus bill. The Treasury yields stabilized after the notes auction showed adequate demand for $38 billion in 10-year Treasuries. The bid-to-cover was 2.38, and foreign investors bought about 20% of Treasuries, which is in line with recent history. __

The growing demand of foreign investors for Treasuries may contribute to the consolidation of the 10-year yield in the range of 1.5-1.6%, which will be good news for the stock market and the[EURUSD][1] bulls. Even including the currency-hedging costs, holding Treasuries in the portfolio is more profitable than buying Japanese or German government bonds.

Dynamics of Treasury yields, including hedging costs

Source : Wall Street Journal

The ECB’s attempts to press down the euro by saying that the PEPP buying will be significantly faster look awkward. Bloomberg’s source familiar with the matter says the Governing Council won’t increase the Pandemic Emergency Purchase Program. If it evenly distributed its operations, the ECB balance would expand by € 17 billion per week until the program expiration in March 2022. The European Central Bank will hardly return to the same purchase volumes as at the pandemic peak (€ 30 billion), and smaller figures won’t concern the market. According to Nordea Markets, the fact that Christine Lagarde did not disclose exactly how much the ECB is ready to buy means that it will not buy too much.

Dynamics of ECB asset purchases

Source : Nordea Markets

So, the [EURUSD][1] bulls, as expected, have not been scared by the Governing Council meeting. The euro has been even up to $1.199 due to the rally of the US stock indexes and the Treasury yields stabilization. The market should be sluggish until the FOMC meeting on March 16-17, wondering if the Fed will express concerns about growing Treasury yields and how it will change its forecasts.

Weekly [EURUSD][1] trading plan

The [EURUSD][1] is likely to consolidate. Hold the shorts entered [on the rise to 1.193][3] and add up to sell trades if the day closes below 1.193. It makes sense to move the stop losses to the breakeven, as the breakthrough of the local high could push the euro up to $1.2035-$1.204.

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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