US dollar price forecast 8 April 2021

2021-04-08

Dollar is to make concessions. Forecast as of 08.04.2021Dmitri Demidenko

A compromise between the White House and the representatives of large corporations on the new tax payments could result in the continuation of the Treasury yields rally. If so, the euro bears could go ahead. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly US dollar fundamental forecast

The widening foreign trade deficit amid the increase in imports usually means the economy’s overheating. However, the Fed and the US administration seem to be unwilling to manage the situation. In February, the US trade deficit reached a record high of $71.1 billion. Nevertheless, Joe Biden continues to put forward the idea of a new $ 2.3 trillion stimulus, and the Fed believes its current interest rates are at the right place. Such a position of the authorities calms down financial markets, allowing the [S&P 500][2] to hit the new all-time highs. However, it may not support the [EURUSD][1] bulls.

Dynamics of US trade balance

Source : Wall Street Journal

The widening of the US twin deficit was one of the main arguments of the bearish USD forecasts for 2021. Despite the greenback’s successful start, some banks and investment companies still hold a bearish outlook for the dollar. For example, Deutsche Bank still believes that the euro will rise to $1.25 by June and to $1.3 by the end of December. Despite the short-term bearish sentiment, Goldman Sachs expects [EURUSD][1] to rally to 1.21 and 1.28 over the next 3 and 12 months. Even Citi, which surprised Forex analysts by its forecast suggesting the greenback should weaken by 20%, doesn’t abandon the former trading ideas, claiming that the USD long-term outlook remains bearish.

On the other hand, BofA Merrill Lynch bets on the growth gap between the USA and the euro area and expects the euro-dollar to go down to 1.15 by December. Commonwealth Bank of Australia suggests that the [EURUSD][1] should soon reach level 1.17 as the number of new coronavirus cases is growing in Europe, and the EU is lagging behind the USA in terms of vaccination rate.

Some analysts say the further euro-dollar trend depends on the Fed’s reaction to US inflation growth. Based on the minutes of the FOMC March meeting, the US central bank believes that the risk of high inflation is almost equal to the risk of low inflation. Several Committee members noted that supply disruptions could lead to higher consumer prices than expected. Others said that the factors that had hampered PCE in the past would soon create new pressures on inflation.

I must say the [S&P 500][2] would hardly have broken through its all- time high, and the [EURUSD][1] would not have moved above 1.19 if it had not been for the US bond market stabilization.

Dynamics of Treasury yields

Source : Bloomberg

Yes, the US bond yields have slowed down, but the new growth driver will be the softening of Joe Biden’s tax plan. Currently, the White House offers a tax hike from 21% to 28%. However, according to Reuters polls, most corporations and government representatives believe there will be reached a compromise of 25%.

Weekly [EURUSD][1] trading plan

The [EURUSD][1] bulls failed to consolidate the price above 1.19, which means their weakness. The euro still looks vulnerable. If the Treasury yields resume the rally, the euro will move to the lower border of the consolidation range of $1.17- $1.195. [Sales on the price rise][3] have been profitable so far.

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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