Euro price forecast 31 March 2021

2021-03-31

Euro is falling deeper. Forecast as of 31.03.2021Dmitri Demidenko

The single European currency seemed to have reached the bottom, but the downtrend continued. The [EURUSD][1] is falling and could reach level 1.1. Let us discuss the Forex outlook and make up a trading plan.

Fundamental euro forecast today

The market is a place of competition between people, who, on the one hand, are too cautious to go ahead and, on the other hand, fear to miss out. It would seem unreasonable to take active steps ahead of the US jobs report, as Fed refers to weak employment justifying its decision to hold the accommodative monetary policy for a long time. However, investors are confident in the US Labor market’s positive changes and have drawn the [EURUSD][1] price to the bottom of figure 17 before the release.

Obviously, the US dollar primary growth driver in 2021 is the Treasury yields rally. In early January, 10-year Treasury yield was 0.91%, and Bloomberg experts expected that by the end of the year, it would grow to 1.25%, at best - to 1.5%. However, the yield hit 1.77% in early March! Too high and too fast for anyone to resist the growing appeal of US assets and the strengthening US dollar.

Dynamics of US Treasury yields

Source : Bloomberg

If the bond yield rally drives the USD index up, it is easy to guess that the [EURUSD][1] downtrend is based on the expectations of the fiscal stimulus boost, increase in the Treasuries issue, and the growth in the US GDP rate. In this regard, the figure of a new aid package from Joe Biden of $ 4 trillion, which appeared in the press, quite logically raised the US bond yields, strengthening the greenback. The more money comes into the economy, the more bonds are issued, the higher is the yield. Why should investors hold the papers with a 0.91% yield when they can buy them with a yield of 1.77% at the auctions?

Rising market borrowing costs press down the US stock indexes. It is especially harmful to technological companies’ stocks, whose capitalization significantly increased in 2020 and now looks overvalued. The drop in the [S&P 500][2] and the [Nasdaq Composite][3] is usually perceived as a deterioration in global risk appetite, which is beneficial for safe-haven currencies, first of all, the US dollar.

The situation is unlikely to be improved by the IMF’s intention to raise the global GDP forecast for 2021. The January estimate assumed the growth of gross domestic product by 5.5%. The large-scale fiscal stimulus and rapid vaccination in the USA are forcing Kristalina Georgieva’s team to increase the expected growth. If the world economy developed in sync, it could help the euro. Nonetheless, the forecast is likely to be raised due to the United States alone. American exclusivity is a reason to buy the greenback.

The euro continues falling, and even the rise of the German inflation rate to 2% in March can’t support the single European currency.

Dynamics of German inflation

Source : Bloomberg

[EURUSD][1] trading plan today

The [EURUSD][1] bulls hoped to find support, but the pair continues going down. The price reached the target at 1.72, defined [earlier][4], and got close to the [next target at 1.168][5]. I suppose the US jobs report will help the bears reach the target. Nonetheless, a substantial drop ahead of the important news release increases the chance of the price rebound up from the levels of 1.168 and 1.164.

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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