Euro price forecast 29 March 2021

2021-03-29

Euro sees no light. Forecast as of 29.03.2021Dmitri Demidenko

The divergence in the epidemiological situation and economic expansion in the US and euro area creates a solid foundation for the EURUSD downtrend. Will the pair find support or continue falling? Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly euro fundamental forecast

The euro hasn’t found support even though there are several positive factors. Germany IFO Business Climate index increased, which suggests Germany’s economy to strengthen despite a surge in coronavirus cases. The [S&P 500][2] returned to the zone of all-time highs. This situation is another evidence that the [EURUSD][1] bulls are in a panic. The euro could end March with the worst result since mid-2020, and there is no light in the dark clouds.

The major driver for the [EURUSD][1] downtrend is the divergence in the epidemiological situation. The US should return to normal within the next few months, while Europe fails to effectively manage the pandemic. Germany warns that the third coronavirus wave could be the worst in Europe, suggesting the return to curfew. At the beginning of the year, the EU governments planned to vaccinate 70% of the population by the end of the summer, but, as Christine Lagarde ironically noted, the summer may not end on September 21.

As a result, options traders are at their most bearish on the euro since July, and the gap between German and US 10-year yields is the widest in a year, which forces the capital outflow from Europe into the USA, pressing down the [EURUSD][1].

Dynamics of German-US 10-year yield gap

Source : Bloomberg.

The euro is pressed down not only by the coronavirus but also by the weaker yuan and the absence of the European recovery fund project ratification by the German Constitutional Court.

After growth in eight months out of nine from April to December last year, Renminbi weakened in February and featured the worst performance in a year in March. Investors are concerned about a potential resumption of the US-China trade war. China has fulfilled only one-third of its promises under the trade deal signed with Donald Trump and shows that it is now afraid of Joe Biden. In response to retaliatory measures from the West, China imposed sanctions on the United States and Canada and signed a 25-year cooperation agreement with Iran, thereby challenging the United States. The US forbids other countries to buy oil from Tehran, but Beijing ignores this instruction. The yuan is falling in price, discouraging the [EURUSD][1] bulls.

Dynamics of euro and yuan

Source : Trading Economics.

Germany’s constitutional court said that the president may not sign off on legislation ratifying the European Union’s Recovery Fund due to urgent appeals from certain political parties in the country alleging that it violates European treaties by opening the door to joint borrowing by member states. After the ECB Chief Economist, Philip Lane, noted that the euro-area economic recovery is highly dependent on fiscal policy, it is clear how important the fund is for the currency bloc and the euro.

Weekly [EURUSD][1] trading plan

Therefore, the [EURUSD][1] bulls are in a difficult situation. There are too many negative factors in the euro area, and the pair’s inability to consolidate at the new red line of 1.18 could continue sell-offs. Nordea Markets suggests the euro is heading to $1.15. In my opinion, if the pair breaks out the support at 1.176, it can continue falling to 1.172 and 1.168.

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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