Logo

Posts

US dollar price forecast 18 March 2021

2021-03-18

2021-03-18

The Fed rules the world. Forecast as of 18.03.2021Dmitri Demidenko

Although Jerome Powell didn’t directly express his attitude to the greenback strengthening, his comments on the US impact on the global economic growth clarified much. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly US dollar fundamental forecast

Few would oppose that the markets are now expensive, and this circumstance results from the Fed’s assistance. That is why investors are rather responsive to the changes in the US central bank policy. The Federal Reserve confirmed that it doesn’t worry about the surge in the Treasury yields. The Fed significantly upgraded its forecast for the US GDP and inflation, which is a good signal for the equities market. And, finally, the regulator hinted at the greenback weakening in the near future. As a result, the Treasury yield rally continued, the [Dow Jones][2] index hit a new all-time high for the 15th time in 2021, and the [EURUSD][1] surged to the top of figure 19. Does the Fed rule the world?

The US central bank continues to hint at soon changes, but no one really believes. Ahead of the FOMC March meeting, analysts expected the Fed would upgrade the US economic data forecasts, but it would not change its projections for the federal funds rate. The central bank met the expectations. The forecast for GDP for 2021 was raised from 4.2% to 6.5%, for inflation - from 1.8% to 2.2%, for unemployment - from 5% to 4.5%. At the same time, only 7 out of 18 Committee members expect a hike in interest rates in 2023 or earlier compared to 5 out of 17 in December. Jerome Powell’s emphasis that the hawks are outnumbered supported the rally in US stock indices. At low rates, stock investors will feature high demand for at least two years.

FOMC forecast for the federal funds rate

Source : Bloomberg

Raising forecasts, the Fed sounded optimistic for the first time in a year, but Jerome Powell said the central bank would not act based solely on this optimism. They need evidence to make decisions on monetary policy. Yes, the US economy is booming, but a strong recovery will lend a helping hand to other countries and regions, such as Europe, that are still struggling to support the economic recovery. Very strong US demand will support global economic activity, according to the Fed Chair.

This comment came in response to a question about the strong divergence between the United States, where the vaccination process is progressing faster, and Congress approved a massive fiscal stimulus, and Europe, which is struggling to do so. Jerome Powell’s position convinces me that the Fed does not intend to strengthen the US dollar. Earlier in my materials, I have repeatedly pointed out that the US economy’s rapid rebound will let the export-led euro-area economy recover, and the euro rate will rise too.

Weekly [EURUSD][1] trading plan

Thus, the Fed has clearly expressed its position. The US central bank doesn’t worry about the Treasury yield growth; it would not oppose the [S&P 500][3] rally; and, finally, it is not aiming at medium- and long- term strengthening of the greenback. This once again convinces me that one should not expect a deep drawdown in [EURUSD][1]. Nevertheless, it makes no sense to bet on the euro uptrend without the signs of the euro- area economic recovery. If the price breaks out the resistance at $1.199, the euro will likely go up to $1.204 and $1,2085, the levels where the bears’ counterattack is expected.

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:

{{value}}

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

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