US dollar price forecast 23 March 2021

2021-03-23

Dollar is prone to volatility. Forecast as of 23.03.2021Dmitri Demidenko

The former US dollar growth drivers could crash it now. The Forex market situation is always changing, and traders should be cautious not to face a loss. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Monthly US dollar fundamental forecast

How fast the Forex market changes! In 2018-2019, US-China trade wars strengthened the US dollar. In 2021, the trade war escalation could weaken the greenback. The tone of the talks between Washington and Beijing in Alaska was cold, and the United States, the European Union, the United Kingdom, and Canada imposed sanctions against China for human rights abuses related to the Uighur minority in Xinjiang. Investors’ demand for the US Treasuries surged. The 10-year Treasury yield dropped, the tech stocks increased, and the [EURUSD][1] tested the important level of 1.193.

The Treasury yield rally has been the major growth driver for the greenback in 2021. According to Bloomberg, holding dollar shorts would have yielded investors about a 2% loss this year after being a profitable strategy in eight of the nine months through to December. For the first time since November, hedge funds became net buyers of the dollar against seven major currencies during the week to March 16.

Dynamics of USD index and dollar speculative positions

Source : Bloomberg

Speculators see Treasury yields soaring to 2% amid a global recovery spurred by vaccine rollouts and stimulus spending. Joe Biden is willing to add more stimulus. After the adoption of a $1.9 trillion aid package by Congress, Biden’s team, according to a Bloomberg source, is preparing a new project of $3 trillion. The money will be spent on infrastructure and green technologies. Rich Americans will have to pay for the aid package, as they have significantly increased their savings amid the pandemic and recession. According to the US President, those who earn more than $400 thousand a year should prepare for a tax hike.

While US-China relations are likely to remain tense, the trade war is unlikely to resume. The potential for correction to the downtrend for Treasury prices looks limited, so the Treasury yields should resume growth (the indicator is inversely proportional to the price). The Treasury yield rise will pull up the bond yields around the world. The ECB can hardly resist the global trends. However, by stepping up asset purchases, the ECB could clamp down on the sales in the European bond market, compared to the US and UK. In the week through March 17, the ECB bought bonds for €21.1 billion, which is 1.5 times more than five days earlier and above the average weekly pace of €18 billion for the entire period of the PEPP.

Dynamics of ECB asset purchases under PEPP

Source : Bloomberg

Monthly [EURUSD][1] trading plan

Despite the success of the [EURUSD][1] bulls at the trading session on March 22, I do not see any particular reasons for euphoria. In the best case, the main currency pair will start a medium-term consolidation in the range of 1.183-1.204. At worst, it would break out the supports at 1.188 and 1.183 and continue falling towards 1.176 and 1.72. The uptrend could resume if the price consolidates above 1.2085 and 1.2125. In the meantime, I recommend using intraday trading strategies with moderate targets.

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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