The EURUSD could go up amid the rumours about Jerome Powell’s fears of the Delta. However, investors will hardly be misled. The Fed will act according to the plan. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
Investors should be flexible in the constantly changing market and regularly review their trading ideas. The reversal of the EURUSD uptrend in June resulted not only from the change in the Fed’s tone but also from a global reassessment of the optimistic story about a soon victory over COVID-19, which would lead to an acceleration in global GDP. The pandemic will hardly end soon, so it is not relevant to buy the euro, at least now.
Amid disappointing data on business activity in various regions of the world, JP Morgan downgraded its forecast for global economic growth in the third quarter by 2.3% to 6%. Despite the moderate optimism of purchasing managers from Europe, the problems in Asia will slow down the global growth. While China quickly stopped the coronavirus outbreak, its GDP is still slowing down as neighbouring countries have to impose lockdowns due to the Delta. If China is in trouble, it will have a negative influence on export-led Germany’s economy. So, there will be another reason why the ECB will maintain its ultra-soft monetary policy for a long time.
While many of the world’s central banks are poised to move towards normalization, Christine Lagarde and her colleagues are at the back of the line. Investors realize that they will not get the same profitability in Europe as, for example, in the United States, where the Fed can raise rates fourfold by the end of 2023. This is the opinion of Nordea, which predicts a fall in EURUSD to 1.1.
Analysts revised the scenario of the Fed’s passive approach and a quick victory over COVID-19, encouraging hedge funds to sell the euro. The euro speculative shorts are close to the highs of 2020 when investors were willing to buy the US dollar because of the global recession.
Dynamics of euro speculative positions
Source: Wall Street Journal
The euro should have strengthened against such a safe-haven asset as the US dollar, as the S&P 500 has hit its 50th record high in 2021. However, the US stock market is rising for different reasons. The US drug regulator granted full approval to the Pfizer Inc/BioNTech COVID-19 vaccine. Furthermore, the House of Representatives approved a $3.5 trillion budget blueprint that clears the way for Democrats in Congress to take action on a sweeping package. The USA has easy access to COVID-19 vaccines, and the US economy will grow rapidly thanks to the generosity of legislators. The US exclusivity is in action, and the greenback is back on top.
Weekly EURUSD trading plan
The approval of the vaccines increases the likelihood that domestic demand in the United States will increase in direct proportion to the growth in the fully vaccinated population. This will allow Jerome Powell not to associate the monetary policy with the spread of the Delta, as Robert Kaplan did. Therefore, the EURUSD will continue falling. Aggressive traders could consider entering shorts when the price breaks out the support zone of 1.172-1.1725. All the rest could wait for Powell’s speech in Jackson Hole.
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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