US dollar price forecast 1 April 2021

2021-04-01

Dollar is in a blaze of glory. Won’t it burn? Forecast as of 01.04.2021Dmitri Demidenko

Forex changes so fast that the USD rally may not continue, despite its impressive growth earlier. Will the euro challenge the powerful greenback? Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Quarterly US dollar fundamental forecast

The US Treasuries rally has become the primary growth driver for the US dollar, which has featured the best quarterly rise over the past few years. According to Barclays research, Treasuries faced the worst sell- off since 1980, which spiked yields and dramatically increased the demand for US assets. By comparison, yields on European and Asian bonds fell at the same rate as in 2019 and 2020, respectively.

Dynamics of Barclays indexes

Source : Bloomberg

Rapid vaccinations, massive stimulus, and the associated confidence in the U.S. economy picking up to its best growth rate since 1983 have boosted 10-year Treasury yields from 0.91% to 1.74%. According to Morgan Stanley, Japanese investors were the first to start selling US government bonds. The bank noted the increased activity of sellers at the Asian session at the end of February, at Asian and European sessions in early March. At the same time, according to the Japanese Ministry of Finance, the net profits of local investors from the sale of foreign bonds from early February to March 20 amounted to $25.5 billion.

Activity of Treasuries sellers

Source : Wall Street Journal

Therefore, Japan contributed to the 4% [EURUSD][1] drop since the beginning of the year. The matter is if the euro downtrend is about to stop or the worst is yet to come.

Joe Biden announced a new $2.3 trillion fiscal stimulus package that is planned to expand in April to bring the total additional aid to $3-$4 trillion. In theory, this should further accelerate economic growth. However, the inflation rise, the increase in the debt servicing costs and taxes will lead to the fact that the recovery after the 2020 recession will be much shorter than after the previous crisis. It can well end by the middle of this decade.

The long-term dollar outlook is not as positive as the short-term, and the euro could start rising in the next six months. Meanwhile, the ECB continues to repeat the mantra that temporary factors caused the inflation growth in Germany and the euro area in March. Christine Lagarde says that financial markets can test the central bank’s strength for as long as necessary. The central bank has enough tools to clamp on the yield growth, and it should retain the policy unchanged. However, there is a growing split among the Governing Council’s members.

The German population is aging and is saving more than spending. The negative interest rates hit the economy. As vaccination progresses and the lockdowns are lifted, the euro-area bond yield growth will become an objective reality. Furthermore, the euro-area bond yields could be growing faster than the US yields. If so, the euro will be supported.

Quarterly [EURUSD][1] trading plan

I believe the [EURUSD][1] trend should reverse in April or May. Many bearish drivers have already been priced, and positive news from Europe will allow the euro to go up. It will be relevant to enter long- and medium-term longs if the [EURUSD][1] goes back above the resistances at 1.185 and 1.193 or if the bears fail to break out the support zone of 1.158-1.164.

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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