Dollar: blind, deaf and mute. Forecast as of 25.02.2021
The Fed’s unwillingness to respond to the Treasury yield growth and the US stock indexes’ rally eliminates the sense of risk. Where will the EURUSD go? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
The expectations of economic changes influence investors’ decisions today, thereby affecting the future. The expectations of inflation growth encourage consumers to buy, contributing to the GDP growth. These factors influence the US stock indexes, which have hit new all-time highs 32 times since early 2021, and the bond market. The US bond market featured the worst start since 2015, and the Treasury yield is rallying up. However, the Fed ignores the market signals.
Earlier, the Bank of Japan was considered the leading innovator in monetary policy, having introduced QE, negative rates, and a yield curve control. Currently, the Fed introduces the main innovations. The shift to average inflation targeting and ignoring financial markets’ signals confuse global central banks. Many of them are not ready to follow this path. The ECB emphasizes that it is closely monitoring European bond market rates. The RBNZ is willing to boost the monetary stimulus despite the economic recovery. The Bank of Korea warned it'd intervene in the market if bond yields continue rising. The RBA already interferes with record asset purchases since QE kicked off in March 2020.
The problem is that trying to go against the global trend alone is doomed to failure. The Reserve Bank of Australia's interventions did not stop Australia’s bond sellers. They bet on risk and reflation. Moreover, by its statement that it intends to make decisions on adjusting monetary policy based on actual, not expected data, the Fed only adds fuel to the fire. This statement by Jerome Powell on the second day of his speeches before Congress has pushed up the S&P 500 and EURUSD.
Market signals inflation should rise, but the US central bank doesn’t believe. In late 2019-early 2020, the Fed didn’t believe that the yield curve signals would result in a recession, but pandemic affected the economy. Jerome Powell pretends he does not understand how consumer prices can rise over a long time if they have not done so for the past 25 years. Powell says inflation is a long process that repeats year after year, not a single spike in prices. However, I do not think it is right to think that inflation cannot grow because it didn’t so before. There was no recession for a long time either, and it was considered unlikely at the beginning of last year.
Weekly EURUSD trading plan
Therefore, the market signals the US economy is overheating. Still, the Fed continues to ignore this, considering it is too early to take away the punch bowl just as the party gets going. This is a perfect environment to eliminate investors’ sense of risk and press down safe-havens, including the US dollar. The EURUSD bulls failed to break out the resistance at 1.218 at the first try, but the second try can well be successful. If so, the euro-dollar could reach the upside targets at 1.221 and 1.225.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-blind-deaf-and-mute-forecast-as-of-25022021/?uid=285861726&cid=79634
The Fed’s unwillingness to respond to the Treasury yield growth and the US stock indexes’ rally eliminates the sense of risk. Where will the EURUSD go? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
The expectations of economic changes influence investors’ decisions today, thereby affecting the future. The expectations of inflation growth encourage consumers to buy, contributing to the GDP growth. These factors influence the US stock indexes, which have hit new all-time highs 32 times since early 2021, and the bond market. The US bond market featured the worst start since 2015, and the Treasury yield is rallying up. However, the Fed ignores the market signals.
Earlier, the Bank of Japan was considered the leading innovator in monetary policy, having introduced QE, negative rates, and a yield curve control. Currently, the Fed introduces the main innovations. The shift to average inflation targeting and ignoring financial markets’ signals confuse global central banks. Many of them are not ready to follow this path. The ECB emphasizes that it is closely monitoring European bond market rates. The RBNZ is willing to boost the monetary stimulus despite the economic recovery. The Bank of Korea warned it'd intervene in the market if bond yields continue rising. The RBA already interferes with record asset purchases since QE kicked off in March 2020.
The problem is that trying to go against the global trend alone is doomed to failure. The Reserve Bank of Australia's interventions did not stop Australia’s bond sellers. They bet on risk and reflation. Moreover, by its statement that it intends to make decisions on adjusting monetary policy based on actual, not expected data, the Fed only adds fuel to the fire. This statement by Jerome Powell on the second day of his speeches before Congress has pushed up the S&P 500 and EURUSD.
Market signals inflation should rise, but the US central bank doesn’t believe. In late 2019-early 2020, the Fed didn’t believe that the yield curve signals would result in a recession, but pandemic affected the economy. Jerome Powell pretends he does not understand how consumer prices can rise over a long time if they have not done so for the past 25 years. Powell says inflation is a long process that repeats year after year, not a single spike in prices. However, I do not think it is right to think that inflation cannot grow because it didn’t so before. There was no recession for a long time either, and it was considered unlikely at the beginning of last year.
Weekly EURUSD trading plan
Therefore, the market signals the US economy is overheating. Still, the Fed continues to ignore this, considering it is too early to take away the punch bowl just as the party gets going. This is a perfect environment to eliminate investors’ sense of risk and press down safe-havens, including the US dollar. The EURUSD bulls failed to break out the resistance at 1.218 at the first try, but the second try can well be successful. If so, the euro-dollar could reach the upside targets at 1.221 and 1.225.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/dollar-blind-deaf-and-mute-forecast-as-of-25022021/?uid=285861726&cid=79634