US dollar price forecast 19 March 2021

2021-03-19

Dollar is one of a kind. Forecast as of 19.03.2021Dmitri Demidenko

In ordinary life, people do not really like those who stand out, but in the market, such companies, countries, or currencies attract everyone’s attention. In 2021, the unique path of the US economic development drives the [EURUSD][1] down. Let us discuss the Forex outlook and make up a trading plan.

Weekly US dollar fundamental forecast

Exclusivity. An essential term for financial markets. Usually, the world’s economies develop in sync; they contract during the global recession and expand in the recovery period. However, if any country goes along a different path, the local currency becomes the strongest. For example, the yuan was growing in 2020 amid China’s unique way in the fight against COVID-19. This year, another country is exclusive – the USA. This circumstance supports the US dollar bulls.

In early 2021, the greenback was an outsider. The election defeat of Donald Trump deprived the dollar of a significant benefit, political uncertainty, and unpredictability. Expectations of synchronized economic growth following the victory over the pandemic supported the growth of the global risk appetite, which should have pressed down safe-haven assets. However, the world GDPs recover unevenly. The US economy should feature the best growth in almost four decades (!), while the euro-area economy should slide into a double-dip recession. The [EURUSD][1] downtrend looks natural amid the divergence in economic expansion.

Dynamics of global economies

Source : Financial Times

Let’s remember how the uptrend in [EURUSD][1] started in 2020. While Donald Trump made mistakes in the fight against the pandemic, the EU effectively managed it with the help of lockdowns, the exit from which allowed the euro-area GDP to outperform the US. The EU recovery fund of €750 billion also supported the euro strengthening. Almost a year has passed, and the US governments cannot agree on spending the funds. It was planned that the money would arrive by the end of April, but this date was postponed until the summer. Christine Lagarde calls for the use of resources without delay, but things are still there so far. The United States continues to increase its fiscal stimulus. Furthermore, Bloomberg estimates the US has $1.7 trillion in extra savings. The money will go into the economy, driving the US GDP to 6.5%

Besides, the vaccination is slow in the EU, where 12% of the population were inoculated compared to 34% in the US. It looks as if the [EURUSD][1] bulls are doomed to failure. But it is not so, in fact. Large-scale fiscal stimulus and explosive growth of the US GDP lead to the expansion of the US twin deficits - the fiscal deficit and a current account deficit, which is negative for the greenback in the long term. All this needs to be funded, and, to encourage foreigners to buy Treasuries, it is necessary not only to raise the yields but also to weaken the dollar.

Dynamics of the shares of foreign investors and Fed in the Treasury

market

Source : Wall Street Journal

Weekly [EURUSD][1] trading plan

Therefore, the [EURUSD][1] long-term outlook remains bullish. However, the uptrend won’t resume until the euro-area economy shows signs of recovery. In the short-term, the pair could go down to 1.18, 1.176, and 1.72 if the traders successfully test the lower border of the consolidation range of 1.188-1.199. Otherwise, if the price breaks out the resistance at 1.199 will allow the pair to go up to 1.204 and 1.2085.

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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