US dollar price forecast 6 April 2021

2021-04-06

Dollar got into a time trap. Forecast as of 06.04.2021Dmitri Demidenko

The market often mocks at investors. When the majority is confident in the continuation of a currency growth, its exchange rate is falling, and vice versa. The crucial thing under such conditions is not to miss the start of a new trend. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Monthly US dollar fundamental forecast

I have many times written that the US dollar won’t rise on the US strong domestic data in April like it did on weak reports in March. In March, the major growth driver for the greenback was the Treasury yields rally. However, the US debt market was overvalued at that time. It is high time the situation stabilized, which the [EURUSD][1] bulls have taken advantage of.

It would seem that an impressive employment increase by 916,000 in March and the strongest growth in the ISM services PMI since the record began in 1997 should have discouraged the US dollar bears. However, as I expected, the market has revealed its true nature – the Treasury yield hasn’t increased, while the [S&P 500][2], on the contrary, has hit a new all-time high. An increase in the global risk appetite usually puts pressure on safe-haven assets, such as the greenback. Therefore, the [EURUSD][1] bulls managed to test level 1.18.

Dynamics of US services PMI

Source : Bloomberg

Some analysts suggest that the purchasing managers’ indexes and employment data are not strong enough to force the Fed to consider any moves towards monetary normalization. Furthermore, Federal Reserve Bank of Cleveland President Loretta Mester said the better-than-expected March payroll report was “great” but not great enough, so the Fed is willing to be patient. But how could it be better!

In my opinion, the Treasury yields are not growing because investors doubt the adoption of Joe Biden’s $3-$4 trillion fiscal stimulus by Congress. The aid project should be paid for by the tax rise, which the big business behind the legislators is not willing to accept. Eventually, the Treasuries issue may not be as sizable as it was expected, and the US economy may not be growing that fast.

It is incorrect to compare March hand April, also because of the epidemiological situation in Europe. Therefore, those who try to act according to the former principles could fall into a trap. For example, Goldman Sachs recommends closing USD shorts versus commodity currencies, as firm U.S. growth and rising bond yields may keep the greenback supported over the short term. The majority of Forex traders share this opinion.

Dynamics of USD speculative positions versus major currencies

Source : Bloomberg

I believe Goldman Sachs and others, sharing the same opinion, could fall into a time trap, missing the start of the [EURUSD][1] uptrend. However, Goldman is still quite bearish on the dollar medium- and long-term outlook. The bank suggests the euro should be at $1.21 and $1.28 in 3 and 12 months, respectively.

Monthly [EURUSD][1] trading plan

As I noted earlier, it is too early to be optimistic about the euro and too late to be pessimistic. The [EURUSD][1] is likely to be consolidating in the range of 1.17-1.195, and it will be relevant to sell on the price rise and buy on the price fall.

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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