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Euro price forecast 3 September 2021 | EURUSD Fundamental analysis

If the Delta, according to the Fed, will not affect the US growth, and high inflation is a temporary phenomenon, the belief in the recovery of their own economies forces other central banks to act. The ECB is no exception. How will the change in the ECB stance affect the EURUSD? Let us discuss the Forex outlook and make up a trading plan.

Fundamental euro forecast today

The euro is growing irrespective of economic news. The EURUSD was up to the middle of figure 18 when there had been bad news for the US dollar about weak growth in private payrolls reported by the ADP. When there was positive news for the greenback about narrowing the US trade deficit, a decline in the number of new jobless claims, and strong data on new orders for the US manufactured durable goods, the euro bulls have ignored that. The pair has reached level 1.188 indicated earlier, and it could well go up above 1.2.

The euro has been rising against the greenback for nine trading days out of ten, which has not happened for a long time. The main drivers for the rally have been Jerome Powell’s speech in Jackson Hole, the rise of European inflation to 3%, and the hawkish tone of the ECB officials. The Fed Chair has convinced financial markets that there is no need to be afraid of the Delta, and high inflation is a temporary phenomenon. As a result, there returns the macro-environment typical for the turn of 2020-2021. At that time, investors believed that humanity would be able to defeat the pandemic despite the increase in the number of new COVID-19 cases. The Fed’s passive attitude was expected to let the US economic growth accelerate, and there would be a huge amount of ample liquidity in the system.

The flood of liquidity continues at present. Moreover, according to Credit Suisse, there’s a seismic shift underway in money markets, the equivalent of going from famine to feast. The premium paid for dollars over the euro, Japanese yen, and so on in the cross-currency markets has been negative for years. Now, these so-called cross-currency basis swaps are about to turn positive in a major shift for money markets. Differently put, there are so many dollars that no one wants them.

Dynamics of cross-currency basis swaps

Source: Bloomberg

In such conditions, it is quite logical that much of the cheap liquidity goes to the stock market. The S&P 500 has been up by 22% since the beginning of the year with 53 record closes and has not been corrected down by 5% since October. Corrections of 1%-2% are immediately bought out. High risk appetite presses down safe-haven currencies, including the US dollar. Moreover, Reuters experts predict the euro will strengthen against the US dollar by 2% within 12 months.

The current EURUSD rally results from the ECB’s willingness to take the first step towards normalizing monetary policy. According to economists surveyed by Bloomberg, the central bank will reduce the monthly pace of asset purchases under the PEPP from the current €80 billion to €50 billion in March. Around €70 billion of the € 1.85-trillion program will remain unspent.

Forecasts for ECB asset purchases

Source: Bloomberg

EURUSD trading plan today

Investors expect a weak report on US employment, pressing down the dollar. The consensus forecast of Reuters experts suggests the US labour market added 750,000 new jobs in August, while BofA expects an increase of 600,000 because of the Delta. I believe if the US jobs report is strong, the EURUSD will go down to the bottom of figure 18. If the data are close to the median gauges, the greenback should also strengthen. However, if non-farm payrolls grow by just 300,000-450,000, the euro could go up to $1,1935 to and higher.




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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