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Euro throws out a feeler. Forecast as of 22.04.2021 Weekly euro fundamental forecast Central banks do not act in isolation, they follow general trends. The trend is usually determined by the Fed. However, if the Fed is willing to remain passive and allow the US economy to overheat, why shouldn’t another central bank go ahead? The Bank of Canada's optimism about the prospects for domestic GDP, its hints about an overnight rate hike in late 2022, and the move to tapering the QE support not only the loonie but also other G10 currencies competing with the US dollar. There could be a different leader among central banks. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/euro-throws-out-a-feeler-forecast-as-of-22042021/?uid=285861726&cid=79634 ECB weekly PEPP purchases
Euro is catching up. Forecast as of 20.04.2021 Slow vaccination in the euro area discouraged the euro buyers. However, investment ideas, popular in late 2020, are coming back this April. The EU governments accelerate the vaccination rollouts. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Fundamental euro forecast for six months This cannot be, because it cannot be! That is what a racer thinks when he/she sees in the rear-view mirror a competitor whom he/she seemed to have outrun enough to forget about. The EU is increasing the vaccination speed, the German bond yields are catching up with the US peers, and the euro is strengthening. As a result, banks upgrade their forecasts for the EURUSD, options market signals higher risk reversals, being evidence of the euro bullish sentiment.
The euro should not have been strengthening as the euro area must face a double-dip recession, the European economies are locked down, and the share of the EU population received at least one dose of COVID-19 vaccine is 25.1% compared to 63.2 % in the USA. Nonetheless, the markets are not interested in the cooling dish, serve it hot. They do not want to buy the past, being interested in the future. The increase in the vaccination rate in Europe will return the trading ideas that were popular in late 2020. Yes, the USA is the locomotive of global economic growth in 2021, but it supports the rest of the world.
In this regard, the information that Pfizer will increase the supply of vaccines to the European Union by 100 million doses was enough to push the EURUSD up to 1.206. Goldman Sachs expects the largest four countries in the eurozone to vaccinate 37% of their population by the end of May, and this figure will be up to 54% in a month. As a result, the bank raised its forecast for the euro from $1.21 to $1.25 by the end of December.
The vaccination speed directly affects the opening up of the economy and the rate of its recovery. Accordingly, it also determines the bond yields. The Treasury yield growth in 2021 has significantly exceeded the German bond yields. However, the gap starts narrowing, encouraging the EURUSD bulls. An important EURUSD growth driver is the return of faith in the euro. Since the beginning of 2021, hedge funds have reduced the euro longs down to annual lows, while Bloomberg experts have downgraded their forecasts for the euro-dollar. The latest consensus estimate suggests that EURUSD will rise to 1.22, although back in January most of them suggested 1.25. Due to the slow vaccination and the success of the US economy, the euro was weakening, but Forex is not a place where you can lose it in one day and not be able to recover for years. Investor sentiment is rapidly changing, and in April, the dollar finally saw its main rival in the rearview mirror.
EURUSD trading plan for six months It is pleasant when investment ideas work out. I have many times written that the Forex situation should radically change in April, compared to March. I recommended entering the EURUSD longs on the breakout of the resistance at 1.1935 with targets at 1.204 and 1.208. The first target has already been achieved, the second one should soon be reached too. I suppose the euro will reach $1.25 in 2021, so it is relevant to buy. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/euro-is-catching-up-forecast-as-of-20042021/?uid=285861726&cid=79634 Dynamics of government bond yields in Germany and USA
Will the EURUSD rally continue? Forecast as of 19.04.2021 The decline in the Treasury yields and the S&P 500 rally create a favorable foreign environment for the EURUSD. However, the uptrend will hardly be steady without positive news from Europe. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast Christine Lagarde compared the euro area with a patient walking out of intensive care with the support of two crutches. However, many patients recover much faster than doctors expect them to. The vaccination speed in Europe is increasing, and there were more than 100 million doses injected in the week ended April 16. So, the EURUSD bulls can well go ahead. Good news from Europe will support the euro rally.
Expectations of the ECB dovish rhetoric and weak forecasts for the euro-area PMI in April set back the euro bulls. Although Klaas Knot, the Dutch Central Bank president, calls for the reduction of asset purchases under the PEPP already in the third quarter, the majority of the Governing Council members are likely to avoid the grandstanding. At its previous monetary policy meeting in March, the ECB decided to increase the bond purchase pace. Since then, adjusting for the Easter holidays, the central bank has bought €19 billion of bonds a week, compared with a weekly average of €15 billion earlier in the year. The ECB doves may want more looking at the growth of the European bond yields, however, such actions can be based on both right and wrong reasons. On the one hand, it is suggested by the euro-area economic recovery. On the other hand, the rally of the European bond yields results from the outer reasons.
The divergence in the growth on government bond yields has been the key driver of the EURUSD strengthening in mid-April. Furthermore, positive news from Europe could support the euro rally. Based on the economic surprise index, the euro now looks a bit undervalued against the US dollar. In March, many US economic reports were disappointing, which allowed divergences to appear in the chart. At the same time, the modest forecasts for the euro area allow us to expect that their exceeding the actual data will encourage the EURUSD bulls to go ahead.
Now, the EURUSD buyers are discouraged by the euro's inability to strengthen against a favorable background. The Treasury yields are going down, the stock indexes hit new all-time highs, pressing down the greenback. Investors wonder what if the S&P 500 starts a correction. In fact, history proves that the stock market rallied 14 out of the last 15 times in a year when 90% of the companies in its calculation base traded above the 50-day moving average, which is still the case at present.
Weekly EURUSD trading plan There will hardly be a deep correction of the US stock indexes. Consumers, according to research by Moody's, have accumulated $ 5.4 trillion in extra savings, and most of this comes from the USA. A favorable foreign environment and the expectations of positive news from the euro area will allow entering the EURUSD long positions on the correction towards 1.193 and 1.188. It is still relevant to buy the euro on the breakout of the resistance at $1.199. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/will-the-eurusd-rally-continue-forecast-as-of-19042021/?uid=285861726&cid=79634 Dynamics of EURUSD and economic surprise index
Dollar is covering the tracks. Forecast as of 16.04.2021 When the world economy is about to rebound, the EURUSD should not fall in response to the US strong domestic data. However, the euro dropped on April 15. What’s the matter? What will happen next? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast Live and learn. The financial markets’ reaction to the release of US strong economic data was the same as to the US March jobs report. The S&P 500 hit a new all-time high for the 22nd time in 2021, and Treasury yields fell. However, the dollar has suddenly strengthened. Nonetheless, the greenback didn’t immediately weaken in early April too. It dropped on the next day. Will the recent history repeat itself?
The US economy is strong. Retail sales jumped 9.8% M-o-M in March, which was the best performance over the last 10 months; industrial production rose 2.7%, and the number of jobless claims fell to the lowest level since the pandemic started. There is no longer any doubt about the rapid growth of US GDP in the second quarter. The worst drop in 10-year Treasury bond yield since the beginning of November looks surprising. It could be explained by the Japanese buyers’ return to the US bond market; they were actively selling Treasuries at the end of the fiscal year in their country. Another reason is that hedge funds have offloaded more than $100 billion of the securities since the start of January.
The world’s most significant sell-off of US government bonds so far in 2021 has been in the financial center of the Cayman Islands, well known as a domicile for leveraged accounts. According to Treasury Department data, Investors there dumped $62 billion of US sovereign bonds in February, after selling $49 billion in January. In fact, if debt market rates continue to decline despite the rapid growth of the US economy, this, on the one hand, will confirm the Fed's words about a temporary surge in inflation. On the other hand, it will increase the global risk appetite. Both factors are bearish for the USD index. Investors may need time to realize this fact and resume EURUSD purchases.
China’s mixed economic data also press down the euro. Even though China's GDP in the first quarter performed the best growth of 18.3%, last year's decline is the reason for this. Compared to October-December, the growth rate of gross domestic product decreased from 2.6% to 0.6%. HSBC estimates that China's economy grew 5.4% if low-base distortions are excluded, down from the pre-crisis 6%. However, I do not think that everything is bad with the Chinese economy. According to Bloomberg, production will peak soon, and demand will continue to grow further, supporting the economy’s sustainable growth.
According to the median gauge of Bloomberg’s experts, the ECB should slow down the emergency asset purchase program by July and, at the end of this year, it will signal the termination of the PEPP in March 2022. At the meeting on April 22, no changes in monetary policy are expected. In addition to the euro-area PMI improvement, this fact should support the euro.
Euro will do the job by proxy. Forecast as of 15.04.2021 If everything is bad in Europe, and the US situation is much better, why the EURUSD is rising in price? If the financial markets feature the same response to the US strong retail sales data as they did after the US jobs report, the euro could well grow higher. Let us discuss the Forex outlook and make up a trading plan.
Fundamental euro forecast today The idea to buy the euro amid the potential acceleration of vaccinations and the euro area's economic recovery due to US and Chinese imports looks good. However, the EU governments must make an effort to support the economic rebound. According to the IMF, the EU countries should increase government spending by another 3% of GDP to reduce the pandemic's economic fallout. If you want something to be done well, do it yourself.
The International Monetary Fund predicts that the euro-area economy will recover more slowly than its major trading partners due to vaccine rollout problems, extended lockdowns, and less significant fiscal stimulus than in the United States. This position seems to be shared by the leading economic institutions in Germany. Reuters source, familiar with the matter, claims they will cut their estimates of German GDP growth in 2021 from 4.7% to 3.7% due to more extended isolation than previously thought. The government focuses on the experts’ forecasts. In January, official Berlin expected economic growth of 3%.
If everything is so bad in Europe, but in the United States, on the contrary, everything is good, why is EURUSD growing? This is the nature of the market! Investors are used to buying the rumor. The worse the forecasts are, the more chances of exceeding them are. Conversely, high estimates of GDP growth may already be priced. In this regard, the release of US retail sales data could be the same story as the most recent US labor market report. Strong statistics pushed the S&P 500 up, pressing down Treasury yields and weakening the greenback.
According to Bloomberg experts, the U.S. retail sales probably surged by 5.8% M-o-M in March after a 3% decline in February thanks to faster hiring, the distribution of federal stimulus checks, a steady pace of Covid-19 vaccinations, and fewer restrictions on stores across the country. BofA Merrill Lynch expects an 11.5% gain. Will the financial markets react in the same way as they did following the US jobs report? The answer to this question is crucial. A positive response will allow buying the EURUSD right away. Furthermore, it will provide further evidence that the euro area still counts on foreign support. And there are two sources of support – the USA and China. China’s GDP report is as important for the euro as the US retail sales data.
China's economy is expected to expand by a whopping 18.5% in the first quarter, the best growth in its 30-year record-keeping history. However, one should not be misled. The reason is the low calculation base of last year when the GDP sank by almost 7%. Compared to the fourth quarter, the economic growth rate is likely to slow down from 2.6% to 1.4%.
Dollar believes the Fed. Forecast as of 14.04.2021 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 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 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. 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 bulls to go ahead. Monthly EURUSD 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. As expected, 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. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/dollar-believes-the-fed-forecast-as-of-14042021/?uid=285861726&cid=79634 Dynamics of trade in goods with EU
Will euro lose the grounds? Forecast as of 13.04.2021 Weekly euro fundamental forecast In 2020, the export-led euro area was going to find support from China, which had surprisingly escaped a large-scale pandemic. In 2021, Europe counted on the US economy, supported by massive fiscal stimulus. But what if there is a conflict between the two countries? The euro area could lose support from both of them.
As the events of 2018-2019 showed, a trade war between the world's largest economies is not the best time for the euro. In 2021, the conflict flares up over Taiwan. China regards Taiwan as a breakaway province which it has vowed to retake, by force if necessary. The United States intends to defend the independence of Taipei in every possible way. At the same time, Washington behaves rather strangely: it strengthens economic ties with Taiwan but threatens to label it as a currency manipulator, which leads to a weakening of the Taiwan dollar. Nonetheless, China, according to Bloomberg's source familiar with the matter, will avoid receiving a black mark from Janet Yellen, which will strengthen the yuan and support the EURUSD. Geopolitical conflicts escalation usually leads to greenback strengthening as the demand for safe-haven assets increases. The demand for US Treasury bonds also grows.
In the first six months of this fiscal year, the US budget deficit reached $ 1.7 trillion, twice as much as in the same period a year earlier. The US desperately needs money, especially as Republicans oppose Joe Biden's plan to fund a new fiscal stimulus package by raising corporate taxes. Thus, it is beneficial for the USA to maintain a high degree of geopolitical tensions in Asia, the Middle East, and in relations with Russia, as foreign investors will be encouraged to buy Treasuries. The US Treasury department managed to profitably place 3, 10, and 30-year securities at auctions at the beginning of the week ending April 16.
Expectations of an increase in the bonds supply in the secondary market and concerns about the US inflation surge contributed to the Treasury yields rally resumption. Therefore, the stock indexes were pressed down, discouraging the EURUSD bulls. According to the research by the Federal Reserve Bank of New York, inflation expectations among consumers for the next year are 3.2%; in 3 years, the expected inflation should reach 3.1%, which is the highest level since March 2014 and does not fit with the Fed's opinion on the temporary CPI acceleration. About 45% of respondents believe that inflation will exceed 4%. Rising commodity prices, supply chain disruptions, huge deferred demand, and high inflationary expectations are powerful drivers for CPI growth. Bloomberg experts suggest that the US inflation rate should increase from 1.7% to 2.4% in March, which seems to be just the beginning.
Weekly EURUSD trading plan The Forex outlook depends on the dollar pairs' reaction to the release of the US inflation data. If the CPI is higher than the consensus forecast, the Treasury yields rally is likely to continue. This scenario suggests the EURUSD should go down below the supports at 1.187 and 1.185, which could send the pair to 1.18 and 1.176. Conversely, a weak reading of the US inflation will suggest that the euro could return to a level above $1.193. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/will-euro-lose-the-grounds-forecast-as-of-13042021/?uid=285861726&cid=79634 Dynamics of yuan and euro
Will geopolitics save yen? Forecast as of 12.04.2021 Weekly yen fundamental analysis Under Donald Trump, America's main enemy was China. Under Joe Biden, it is going to be Russia. The White House calls Nord Stream 2 a bad deal, threatens the Kremlin with new sanctions, and is interested in escalating Russia and Ukraine's geopolitical conflict. At the same time, Washington is blacklisting Chinese super-computer companies and preparing a Strategic Competition Act for congressional consideration to counter China. Over the past few weeks, Beijing has increased the number of aircraft in Taiwan's airspace, and Israel has attacked the Iranian naval vessel Saviz. Therefore, geopolitical risks are mounting, which has historically been good news for the US dollar. As a rule, this factor is realized by increasing demand for treasury bonds, which leads to a decrease in their yield. Nevertheless, in March, the rally in US debt market rates was the main driver of the greenback strengthening, so other safe-haven currencies such as the yen and the franc can benefit from the escalating geopolitical risks.
The USDJPY featured the worst drop since November in the first full week of April. Investors get a clear explanation of whether an increase in the S&P 500 or a decline in Treasury yields is a more powerful argument for the USDJPY bears. Even though the US stock index continues to update highs, the dollar price against the yen, ¥109-109.5, weakened due to falling debt rates. At the same time, the release of US data on consumer prices in March may return investor interest in Treasuries' sale, which will be a real blow to the yen. According to Bloomberg experts' forecasts, CPI will accelerate to 2.4%. Judging by the rise in producer prices to 4.2%, the actual data is likely to surpass estimates.
The USDJPY volatility could substantially surge in the week ending April 16. The pair will be influenced by rising geopolitical risks and fears of US inflation soaring to 3% or more over the next few months. The dynamics of the Japanese currency will continue to depend on foreign environment, while the idea to trade on the vaccination progress, popular in 2021, will hardly affect the yen prices. In terms of the vaccination rate, Japan is one of the outsiders among the G-7, but based on mortality, the country's situation does not look doom. Weekly USDJPY trading plan In my opinion, the yen's fate will continue to be in the hands of the US debt market. In the long term, due to the explosive growth of the US economy, the rally in Treasury yields is likely to resume, allowing the USDJPY bulls to recover the uptrend. Nevertheless, in the short-term, geopolitics and stabilization of the Treasury bond market are fraught with a continuation of a pullback or consolidation. I recommend buying on the breakout of the resistances at 109.8 and 110 with targets at 112 and 114. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/will-geopolitics-save-yen-forecast-as-of-12042021/?uid=285861726&cid=79634 Dynamics of the US dollar and the Uncertainty Index
Dollar is to make concessions. Forecast as of 08.04.2021 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 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 to hit the new all-time highs. However, it may not support the EURUSD bulls. 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 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 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 would hardly have broken through its all-time high, and the EURUSD would not have moved above 1.19 if it had not been for the US bond market stabilization. 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%.
Euro is about to rebound. Forecast as of 07.04.2021 The market sometimes goes too far, and the US dollar is no exception. In early spring, the dollar was growing too fast, and investors are now revising the situation. The EURUSD bulls are not as weak as it was thought before. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Monthly euro fundamental forecast The future consists of what we already know and what we have yet to learn. Hardly anyone was surprised by the increased US GDP forecasts for 2021 from 5.1% to 6.4%. However, the IMF upgraded the growth projections for China, paying for the economic stimulus, and the locked-down euro-area, which has become a pleasant surprise for the EURUSD bulls. They took advantage of a halt in the Treasury yields rally and pushed the pair price above the middle of figure 18.
Things are not as bad as they seemed before. According to the IMF, the recent recession won’t leave as severe consequences as the previous one due to the massive incentives. By 2024, the OECD countries will produce only 1% less than predicted before the pandemic. For comparison, after the crisis of 2008-2009, the gap between the expected and actual growth was 10%. The United States, due to the large-scale monetary and fiscal stimulus, will manage the recession fallout with little or no loss and help other countries. However, over the next five years, the global GDP driver will be China, not the USA. Both factors, including the US assistance to the export-led economies and China’s leadership, are favorable for the euro. Furthermore, there are unconventional views on fiscal policy, which will support the EURUSD bulls. According to UBS, Joe Biden's $1.9 trillion aid package is not more significant for the United States than the €750 billion Recovery Fund for Europe. In fact, most of the EU stimulus will come in 2021, while in the USA, the new packages will simply replace the previous ones. The bank estimates the impact of the program adopted by Congress at +0.5 % to US GDP in 2021, while European stimulus will add 1% to the euro-area GDP in the same period.
By and large, the EU efforts to create the European common bond market, China's financial openness and the growing US twin deficit are bearish factors for the USD index. The greenback must have been growing too fast in March, and investors realize this fact in April. A case in point is the decline in the Treasury yields and the lower chance of the federal funds rate hike in response to the robust US PMI and employment data. Currently, the derivatives market is betting on a Fed rate hike in late 2022, and a further 75-bps increase by early 2024. Nevertheless, the Fed members express the willingness to allow the US economy to overheat. The Fed does not try to clamp down on the growth of US bond yields, as it considers it to be fundamentally justified. As long as financial conditions, according to Oxford Economics, are close to 20-year lows, the central bank won’t take active steps.
Monthly EURUSD trading plan I believe there appear reasons for the EURUSD rally start which will resume the euro uptrend. This fact suggests the trading strategy of buying the euro-dollar on the corrections. On the other hand, the euro-area economic situation will hardly improve soon. Therefore, the euro tendency to consolidate in the range of $1.17-$1.195 makes it profitable to sell the EURUSD on the price growth to the upper border of the range. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/euro-is-about-to-rebound-forecast-as-of-07042021/?uid=285861726&cid=58534 IMF projections
Dollar got into a time trap. Forecast as of 06.04.2021 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 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, 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 bulls managed to test level 1.18. 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. I believe Goldman Sachs and others, sharing the same opinion, could fall into a time trap, missing the start of the EURUSD 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.
Dollar is to reveal its true nature. Forecast as of 05.04.2021 Weekly US dollar fundamental forecast In April, it is too late to be pessimistic about the EURUSD outlook, and it is too early to be optimistic. Europe faces a gloomy spring as the continent manages the vaccine shortage, more infectious variants of COVID-19, and pandemic fatigue. However, the euro bulls hope that the epidemiological situation will soon improve, the European Recovery Fund will be ratified, and the euro-area economy will rebound, also due to the USA.
In March, the US labor market added 916,000 new jobs. In addition to the revision of the January and February employment up and the drop in the unemployment to a pandemic low of 6%, it allows optimists to say that the US economy undergoes radical changes. Pessimists, on the contrary, note that another 8.4 million new jobs are needed for the labor market recovery. The US has a long way to go, and the Fed has no choice but to continue monetary stimulus and keep rates at current levels until at least 2023. The financial market reaction to the release of the US jobs report was muted as the stock market was closed due to Good Friday, and the bond market had reduced working hours. U.S. Treasury yields received a bump higher following the report, with the 10-year rate climbing as high as 1.724%, which somehow discouraged the EURUSD bulls. Investors shifted their focus to the report on the ISM services PMI data. The market should feature a more genuine reaction then.
The update of the IMF forecasts for global growth is also worth attention. In January, the IMF expected to see the global GDP at 5.1%. However, due to a new fiscal stimulus package from Joe Biden and accelerated vaccinations in the USA, the estimate is likely to be raised. Much of the International Monetary Fund's optimism is associated with the United States, which will become the engine of global economic growth in 2021. It would seem that American exclusivity will continue to support the USD rally, but a lot can change in the second part of spring.
Analysts are increasingly speaking about the two-speed economy. Among the leaders are the United States, China, UK, and other countries where vaccines are being actively introduced. The outsiders are emerging markets, whose access to drugs from Pfizer, AstraZeneca, Moderna, and other companies is limited, and Europe, where the vaccination company is progressing extremely slowly. However, the EU vaccination rate could increase, and the export-led euro-area economy could benefit from the increase in US imports. Weekly EURUSD trading plan Under such circumstances, it is important to choose the right time. It should be too early to buy the euro, but it is already too late to sell the euro-dollar actively. The potential of the EURUSD downtrend looks limited, and it should soon be relevant to buy the pair on the price decline to 1.158-1.164. However, until the EURUSD price consolidates above 1.184, bears continue to dominate in the market, and it is still relevant to enter short-term sell trades. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/dollar-is-to-reveal-its-true-nature-forecast-as-of-05042021/?uid=285861726&cid=79634 Dynamics of US employment
Dollar: It is time of facts. Forecast as of 02.04.2021 The US jobs report for March could determine the EURUSD trend for the next month or even longer. Let us discuss the Forex outlook and make up a trading plan.
Fundamental US dollar forecast today In March, the US dollar showed quite a good performance, often amid weak US domestic data. We shall see the dollar price moves when the economic data start improving steadily. The EURUSD reaction to the US jobs report could determine the market trend for the next month or even longer. We shall closely watch the market movements.
Daiwa Securities notes that not only speculators buy the greenback but also asset managers. The company says the USD index will continue the rally as long as the US economy grows and Treasury yields are rising. Nordea Markets shares the same opinion, suggesting the EURUSD is heading for 1.15. I do not think so.
Markets are rising on the expectations. It happened so that the US GDP forecasts for 2021 were upgrading amid massive fiscal stimulus and rapid vaccination, while the failure of the COVID-19 vaccination campaign in the EU, the extension of the lockdowns, and the third pandemic wave in Europe made JP Morgan and Deutsche Bank downgrade the euro-area growth forecasts from 5.8% to 5.3% and from 5.6% to 4.6%, respectively. Therefore, investors were selling off the EURUSD on the rumors, and now it is time to take the facts into account. The fact is that the euro-area PMIs are growing despite the restrictions, and the US economic recovery could support other world’s economies, including the euro area. The euro-area manufacturing sector managed to provide a growth momentum for the composite PMI in March. Germany’s manufacturing PMI has featured the best growth over the 25-year history of records. Furthermore, the WTO increases international trade forecasts for 2021 to 8%, which is a strong argument for buying the export-led countries' currencies. I mean euro. The WTO notes that Joe Biden’s $1.9 trillion stimulus will increase demand in North America by 11.4%. Most of the demand will be satisfied by the producers from Asia and Europe.
Therefore, EURUSD bulls lack only one thing, the acceleration of the vaccination campaign. In the EU, only 16.5% of the population received at least one dose, compared to 45.6% in the USA. I believe the situation should improve in the second quarter. The matter is in psychology, first of all. There are quite many people who are unwilling to vaccinate. Therefore, a quick start does not guarantee a victorious finish.
A strong jobs report will only convince the strong position of the US economy, which in the medium term is a benefit for export-led countries. In this regard, employment growth above 647,000 expected by Reuters experts may provoke a further rally in the S&P 500 and support the EURUSD. On the other hand, if Treasury yields resume growth, the euro will come under pressure.
Dollar is in a blaze of glory. Won’t it burn? Forecast as of 01.04.2021 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. 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. Therefore, Japan contributed to the 4% EURUSD 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.
Euro sees no light. Forecast as of 29.03.2021 The divergence in the epidemiological situation and economic expansion in the US and euro area creates a solid foundation for the EURUSD downtrend. Will the pair find support or continue falling? Let us discuss the Forex outlook and make up a EURUSD trading plan.
Weekly euro fundamental forecast The euro hasn’t found support even though there are several positive factors. Germany IFO Business Climate index increased, which suggests Germany’s economy to strengthen despite a surge in coronavirus cases. The S&P 500 returned to the zone of all-time highs. This situation is another evidence that the EURUSD bulls are in a panic. The euro could end March with the worst result since mid-2020, and there is no light in the dark clouds.
The major driver for the EURUSD downtrend is the divergence in the epidemiological situation. The US should return to normal within the next few months, while Europe fails to effectively manage the pandemic. Germany warns that the third coronavirus wave could be the worst in Europe, suggesting the return to curfew. At the beginning of the year, the EU governments planned to vaccinate 70% of the population by the end of the summer, but, as Christine Lagarde ironically noted, the summer may not end on September 21.
As a result, options traders are at their most bearish on the euro since July, and the gap between German and US 10-year yields is the widest in a year, which forces the capital outflow from Europe into the USA, pressing down the EURUSD. The euro is pressed down not only by the coronavirus but also by the weaker yuan and the absence of the European recovery fund project ratification by the German Constitutional Court.
After growth in eight months out of nine from April to December last year, Renminbi weakened in February and featured the worst performance in a year in March. Investors are concerned about a potential resumption of the US-China trade war. China has fulfilled only one-third of its promises under the trade deal signed with Donald Trump and shows that it is now afraid of Joe Biden. In response to retaliatory measures from the West, China imposed sanctions on the United States and Canada and signed a 25-year cooperation agreement with Iran, thereby challenging the United States. The US forbids other countries to buy oil from Tehran, but Beijing ignores this instruction. The yuan is falling in price, discouraging the EURUSD bulls. Germany’s constitutional court said that the president may not sign off on legislation ratifying the European Union’s Recovery Fund due to urgent appeals from certain political parties in the country alleging that it violates European treaties by opening the door to joint borrowing by member states. After the ECB Chief Economist, Philip Lane, noted that the euro-area economic recovery is highly dependent on fiscal policy, it is clear how important the fund is for the currency bloc and the euro.
Weekly EURUSD trading plan Therefore, the EURUSD bulls are in a difficult situation. There are too many negative factors in the euro area, and the pair’s inability to consolidate at the new red line of 1.18 could continue sell-offs. Nordea Markets suggests the euro is heading to $1.15. In my opinion, if the pair breaks out the support at 1.176, it can continue falling to 1.172 and 1.168. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/euro-sees-no-light-forecast-as-of-29032021/?uid=285861726&cid=79634 Dynamics of German-US 10-year yield gap
Dollar drags on euro. Forecast as of 25.03.2021 Based on different vaccination rates and the growth gap, the EURUSD bulls should be losing. However, the strong US economy could drag on the rest of the world, including the euro-area. Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast Investors were focused on the Treasury yield rally, ignoring the US weak domestic data. The drop in the durable goods orders by 1.1% M-o-M in February, following nine months of growth, added to the negative produced by declines in retail sales, industrial production, and new home sales. Nonetheless, traders were selling Treasuries, and the EURUSD was falling. What will happen when the US economic data start improving?
In fact, the Treasury yield could be growing without strong economic data. Markets are growing or falling on the expectations, and belief in the US GDP rise to 6.5% in 2021 encourages investors to sell safe-haven assets. According to the Bloomberg model, of the 84-basis-point increase in the 10-year U.S. Treasury yield since the start of the year, 60 resulted from stronger growth expectations. That’s a clear contrast to the 2013 taper tantrum when the rise in yields was driven by expectations of premature QE end. So, the Fed is not worried about the rising cost of borrowing in the markets. Jerome Powell continues to repeat the mantra that it is an orderly process that does not materially degrade financial conditions. This means that the central bank should not be concerned about this. The Fed will make decisions based on evidence, but what will strong US statistics mean for the dollar?
In 2020, the US current account deficit increased to 3.5% of GDP; the budget deficit widened to 15% of GDP. The imports growth and fiscal stimulus would further expand the US twin deficit, which would press the greenback down in the long-term outlook. Eventually, foreign investors will not want to fund the US national debt, and the Fed will have to boost the QE pace to cover the deficit. Besides, increasing the US foreign trade deficit will increase the surplus in the euro-area. It means the US economy will support the euro-area growth. In addition to the increase in the global risk appetite amid the US economic data improvement, this fact will support the EURUSD bulls.
Of course, without positive changes in the euro-area economic data and vaccination process, the euro will not grow. However, I can’t say everything is that bad in Europe. Germany manufacturing PMI has featured the best rise since the records began in 1996, and European commodity prices are growing faster than US ones. The ECB could be worried about inflation! Weekly EURUSD trading plan The euro-area PMI data provided some positive, but will the EURUSD rebound? I do not think the euro will start rising without an increase in the vaccination rate in the EU. Europe is preparing for the third wave of the COVID-19 pandemic, and the US vaccination campaign is progressing. The euro-dollar price is more likely to drop to 1.18, 1.176, and 1.172 than go back to the red line at 1.193, but this is the case when I would be glad if I were wrong. It is still relevant to sell the euro. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/dollar-drags-on-euro-forecast-as-of-25032021/?uid=285861726&cid=79634 Treasury yields growth drivers
Dollar has the key. Forecast as of 24.03.2021 The pandemic seems to have been over. But it still has a significant impact on Forex. Europe is preparing for the third wave, and the euro-area PMI will hardly recover soon. Where will the EURUSD go? Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast Everyone makes mistakes. Some get away with it, and others have to pay a high price. Donald Trump didn’t recognize the pandemic in the beginning, which caused 550,000 deaths in the US. As a result, Trump lost the presidential election, and the US dollar significantly weakened. Slow vaccination and EU mistakes in the vaccine roll-out sent the euro down to the November lows. I am afraid the single European currency could continue falling.
According to Penn Wharton research, if 25% of Americans refuse vaccinations and the level of social activity rises to 70% of the pre-pandemic, 4.6 million people in the US may be infected with the COVID-19 in 2021. In Europe, there can be much more new cases, as the vaccination is progressing very slowly, and the alleged side effects from AstraZeneca drugs seriously scared the population. The faster is the roll-out of the vaccine, the higher is the economic growth rate, and the stronger is the local currency. The EURUSD downtrend proves it.
In late March, 127.1 million people (38.7% of the population) received at least one dose in the US; in the EU - only 59.2 million (13.2%). The US GDP forecasts have naturally increased compared to late 2020. The euro-area growth forecasts have been downgraded. And the leading growth of the US economy compared to the G10 countries is the key to the dollar strengthening. Europe faces an increase in the number of infections, hospitalizations, and deaths, preparing for the third wave of the pandemic and seriously frightened by the story of AstraZeneca. France and Germany are extending lockdowns, and the European Union is limiting the export of vaccines produced on its territory. Is it possible in such conditions to count on the PMI rebound?
The release of Markit's Purchasing Managers' Index was initially presented as the highlight of the week ending March 26. According to Bloomberg experts, the euro-area manufacturing PMI will decline from 57.9 to 57.7 in March. Services PMI will increase from 45.7 to 46 but will remain below the critical mark of 50, which indicates a contraction of the sector. By contrast, the US PMI can well increase amid rapid vaccinations and massive fiscal stimulus. The growth gap between the US and the euro area will widen, pressing the EURUSD down.
Weekly EURUSD trading plan My trading ideas to sell the pair on the rise to 1.199 and add to shorts if the price fails to break out the red line at 1.193 have been profitable. But it is the case when I am not happy with the correct forecast. I am an optimist and used to believe that the pandemic will end sooner. However, it doesn’t seem so. The downside targets at 1.18, 1.176, and 1.172, marked in the previous forecasts, are getting closer. The PMI data will give a clue on the EURUSD future price movements. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/dollar-has-the-key-forecast-as-of-24032021/?uid=285861726&cid=79634 GDP forecasts
Dollar is prone to volatility. Forecast as of 23.03.2021 The former US dollar growth drivers could crash it now. The Forex market situation is always changing, and traders should be cautious not to face a loss. Let us discuss the Forex outlook and make up a EURUSD trading plan.
Monthly US dollar fundamental forecast How fast the Forex market changes! In 2018-2019, US-China trade wars strengthened the US dollar. In 2021, the trade war escalation could weaken the greenback. The tone of the talks between Washington and Beijing in Alaska was cold, and the United States, the European Union, the United Kingdom, and Canada imposed sanctions against China for human rights abuses related to the Uighur minority in Xinjiang. Investors’ demand for the US Treasuries surged. The 10-year Treasury yield dropped, the tech stocks increased, and the EURUSD tested the important level of 1.193.
The Treasury yield rally has been the major growth driver for the greenback in 2021. According to Bloomberg, holding dollar shorts would have yielded investors about a 2% loss this year after being a profitable strategy in eight of the nine months through to December. For the first time since November, hedge funds became net buyers of the dollar against seven major currencies during the week to March 16. Speculators see Treasury yields soaring to 2% amid a global recovery spurred by vaccine rollouts and stimulus spending. Joe Biden is willing to add more stimulus. After the adoption of a $1.9 trillion aid package by Congress, Biden’s team, according to a Bloomberg source, is preparing a new project of $3 trillion. The money will be spent on infrastructure and green technologies. Rich Americans will have to pay for the aid package, as they have significantly increased their savings amid the pandemic and recession. According to the US President, those who earn more than $400 thousand a year should prepare for a tax hike.
While US-China relations are likely to remain tense, the trade war is unlikely to resume. The potential for correction to the downtrend for Treasury prices looks limited, so the Treasury yields should resume growth (the indicator is inversely proportional to the price). The Treasury yield rise will pull up the bond yields around the world. The ECB can hardly resist the global trends. However, by stepping up asset purchases, the ECB could clamp down on the sales in the European bond market, compared to the US and UK. In the week through March 17, the ECB bought bonds for €21.1 billion, which is 1.5 times more than five days earlier and above the average weekly pace of €18 billion for the entire period of the PEPP. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/dollar-is-prone-to-volatility-forecast-as-of-23032021/?uid=285861726&cid=79634 Dynamics of USD index and dollar speculative positions
Euro is sad about lost summer. Forecast as of 22.03.2021 Weekly euro fundamental forecast How resilient is the euro-area economy to new COVID-19 restrictions? This question will be crucial for the EURUSD in the week ending March 26. Slow vaccinations and often inappropriate EU actions undermine investors’ confidence and encourage them to sell the euro. Moreover, lockdowns can turn into another lost summer for those EU countries where the tourism share in the GDP is significant. As a result, the euro bulls will be challenged by the problem of the rich North and the poor South. Emmanuel Macron's introduction of a new four-week lockdown in Paris and Angela Merkel's proposal of additional restrictive measures in Germany, where the national seven-day rate of infections per 100,000 people rose to 103.9, put significant pressure on the single European currency. According to ING, if earlier forecasts for the euro-area economy were based on the easing of restriction measures in March, now we should forget about it. The bank has revised down its estimate for the European GDP for 2021 from -0.8% to 1.5%, and it is not alone. Barclays believes the lockdown will be lifted by the end of the second quarter, weakening domestic demand. Berenberg claims monthly quarantine deducts 0.3 % from the euro-area GDP rate.
The situation is aggravated by the slow vaccination and the often inappropriate EU behavior. In the European Union, 12.7% of the population were vaccinated, in the United States - 37.6%. According to a Bloomberg source familiar with the matter, the EU will likely reject the export authorization of AstraZeneca Plc coronavirus vaccines to the U.K. until the drugmaker fulfills its delivery obligations to the 27-nation bloc. But even a couple of days ago, vaccinations with the AstraZeneca drug were suspended due to the alleged side effects. For more information follow the link to the website of the LiteForex https://www.liteforex.com/blog/analysts-opinions/euro-is-sad-about-lost-summer-forecast-as-of-22032021/?uid=285861726&cid=79634 Forecasts for euro-area and US GDPs
Gold acts too impulsive. Forecast as of 18.03.2021 Fundamental gold forecast for a week Looking at how strong gold was ahead of the FOMC meeting against the backdrop of growing US Treasury yields and the US dollar's strengthening, I caught myself thinking that the precious metal was waiting for the Fed's verdict. As a result, the gold price soared to a 2-week high, but the EURUSD bulls' inability to break out the resistance at level 1.199 drove the gold price down. Perhaps the central bank would like the greenback to be weaker than it is now, but without the recovery of the economies competing with the US, this will be extremely difficult to implement. The Fed has both good and bad news for gold. The regulator expects inflation to accelerate to 2.2% in 2021, followed by a slowdown to 2% in 2022 and 2.1% in 2023, and, most importantly, is ready to tolerate consumer prices' rise. Jerome Powell considers the current monetary policy parameters are fair, and most FOMC members do not plan to raise rates until 2024. The precious metal is traditionally perceived as a hedge against inflationary risks. In turn, accommodative monetary policy tends to create a tailwind for gold, contributing to the dollar weakening and low debt market rates. This time it's not like that.
The Fed's move to target average inflation and get rid of incentives ahead of time makes financial markets doubt Powell's words. As a result, US Treasury yields are rising, while gold ETFs holdings are rapidly decreasing, having dropped by 150 tons since the beginning of the year. US debt market rates will continue to rise. These are the outcomes of a situation where the economy is ready to accelerate to 6.5% in 2021 and where the population has about $1.7 trillion in excess savings, according to Bloomberg estimates, excluding Joe Biden's fiscal stimulus. Expectations of faster US GDP growth compared to competitors tend to strengthen the greenback. Perhaps the Fed would like the USD index to be weaker than it is now, but without acceleration of the EU vaccination campaign and the associated improvement in eurozone business activity, the EURUSD price at best will begin to consolidate, and at worst will continue to fall. The euro share in the USD index structure is 57%, so the European currency is an important driver of gold market changes. It is likely that in the third quarter, or perhaps a little earlier, a lot will change, but so far, the XAUUSD bulls' attacks look too impulsive. As a rule, such behavior leads to a loss of money.