Euro price forecast 22 March 2021

2021-03-22

Euro is sad about lost summer. Forecast as of 22.03.2021Dmitri Demidenko

When the basic scenario doesn’t work, forecasts lose their relevance. It was earlier expected that the EU would lift the lockdowns in March. However, the terms are postponed now. How will it affect the euro? Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly euro fundamental forecast

How resilient is the euro-area economy to new COVID-19 restrictions? This question will be crucial for the [EURUSD][1] in the week ending March 26. Slow vaccinations and often inappropriate EU actions undermine investors’ confidence and encourage them to sell the euro. Moreover, lockdowns can turn into another lost summer for those EU countries where the tourism share in the GDP is significant. As a result, the euro bulls will be challenged by the problem of the rich North and the poor South.

Emmanuel Macron’s introduction of a new four-week lockdown in Paris and Angela Merkel’s proposal of additional restrictive measures in Germany, where the national seven-day rate of infections per 100,000 people rose to 103.9, put significant pressure on the single European currency. According to ING, if earlier forecasts for the euro-area economy were based on the easing of restriction measures in March, now we should forget about it. The bank has revised down its estimate for the European GDP for 2021 from -0.8% to 1.5%, and it is not alone. Barclays believes the lockdown will be lifted by the end of the second quarter, weakening domestic demand. Berenberg claims monthly quarantine deducts 0.3 % from the euro-area GDP rate.

The situation is aggravated by the slow vaccination and the often inappropriate EU behavior. In the European Union, 12.7% of the population were vaccinated, in the United States - 37.6%. According to a Bloomberg source familiar with the matter, the EU will likely reject the export authorization of AstraZeneca Plc coronavirus vaccines to the U.K. until the drugmaker fulfills its delivery obligations to the 27-nation bloc. But even a couple of days ago, vaccinations with the AstraZeneca drug were suspended due to the alleged side effects.

Against the backdrop of gloomy Europe, the United States looks like a huge bright spot. There is a considerable divergence in the economic growth in 2021, based on the forecasts of the ECB and the Fed. So, the [EURUSD][1] fall is natural.

Forecasts for euro-area and US GDPs

Source : Bloomberg

The situation should radically change in 2022 amid the positive effects of Joe Biden’s fiscal stimulus. According to Bloomberg estimates, consumers in the world’s largest economies have accumulated $2.9 trillion, $1.5 trillion of which comes from the United States. According to Allianz’s research, US imports are about to boost; about $ 360 billion of the $1.9 trillion aid package will be spent on imported goods, with China, Mexico, Canada, and Germany as the primary beneficiaries.

Growth of exports to the US caused by Joe Biden’s stimulus

Source : Financial Times

Weekly [EURUSD][1] trading plan

Therefore, the [EURUSD][1] uptrend could still resume. But this will occur later than expected, most likely in the third or fourth quarter. Now, we should monitor the resilience of the euro-area economy and the euro bulls’ ability to manage the Treasury yields rally. I believe the level of 1.193 is a kind of red line, which will provide clues. As long as the EURUSD is below this level, it is relevant to sell with the targets at 1.18 and 1.176. When the price consolidates above the important level, it could continue the rally to 1.199, 1.204, and higher.

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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