US dollar price forecast 14 April 2021

2021-04-14

Dollar believes the Fed. Forecast as of 14.04.2021Dmitri Demidenko

In March, the market believed that the US inflation surge would make the Fed take active steps. In April, investors have changed their viewpoint. The Fed will remain passive even if the СPI is up to 3.5%. Where will the euro go? Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Monthly US dollar fundamental forecast

The world is not as it is, but as we imagine it. The financial markets’ reaction to the release of US inflation data for March convinces that investors have finally believed the Fed’s mantra of temporary inflation growth. Typically, a CPI boost encourages investors to sell the US Treasury bonds, leading to higher yields. This time, the Treasury yields fell, pressing down the US dollar as well.

It is difficult to spend money on car fuel if you stay at home all the time. The low base last year led to a sharp jump in petrol prices by 9.1%, which accounted for more than half of the 2.6% rise in consumer prices in March. The indicator performed the best growth for almost nine years. In the coming months, it should continue rising to 3% by June. Oxford Economics even believes that CPI will soar to 3.5%, but this will not trigger an inflationary spiral. Yes, the low 2020 base, significant deferred demand, and supply disruptions will surely drive consumer prices up, but the Fed believes the rise will be temporary. And the market trusts the central bank. Moreover, Wall Street Journal experts suggest the US inflation should slow down to 2.6% by December.

The Federal Reserve passed the resistance test given by the Treasuries sellers in March. The end of the rally in Treasury yields has deprived the US dollar of its main advantage, the expectations of earlier monetary policy tightening than the central bank says. If so, even despite the US economy’s strength, the [EURUSD][1] could resume the uptrend and go to the level of 1.25 already in 2021. The euro-area economy is supported not only by the USA with its potential 6.5% GDP growth but also by China, which outperformed the US last year in terms of trade in goods with the EU.

Dynamics of trade in goods with EU

Source : Wall Street Journal

In this regard, it is not surprising that the more than 38% jump in China’s imports in March, together with the US Treasury’s intention not to label China as a currency manipulator, strengthened not only the yuan but also the euro.

Rely on others, but do not make a mistake yourself. Google’s mobility data show an increase in hypermarket visits across Europe. And this is amid the stricter lockdowns. This fact, in addition to the PMI increase, the IFO German business climate improvement, and ZEW positive investor sentiment, as well as the vaccination acceleration in the euro area, encouraged the [EURUSD][1] bulls to go ahead.

Dynamics of daily vaccination in Europe

Source : Financial Times

Monthly [EURUSD][1] trading plan

As I wrote, the Forex market situation has radically changed in April compared to March. In March, investors bet on the earlier federal funds rate hike than the FOMC officials suggested. In April, the markets abandoned this idea. Besides, the euro-area economic performance improves, encouraging investors to buy the [EURUSD][1]. [As expected][2], the breakout of the resistance at 1.193 lets us expect the rally continuation to 1.2, and next, to 1.204 and 1.208. It is relevant to buy the pair 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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