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Forecast for euro price for 30 August 2021 | Fundamental analysis of EURUSD


Jerome Powell said nothing that could inspire EURUSD bulls, but the pair’s quotes grew all the same. Might the reason be a forecast for European inflation? Let’s discuss that and make a trading plan.

Weekly fundamental forecast for euro

Like the gold price depends on what the Fed thinks about inflation and not inflation itself, the dollar rate depends on how the market interprets Powell’s statements and not his statements. The Fed president didn’t voice concern about Delta, saying the US economy had every chance to return to full employment despite the short-term risk. He made a hawkish statement that a QE taper would most likely start in 2021. However, Treasury yields slumped, stock indexes grew, and EURUSD quotes rocketed to 1.18. 

Powell had found the right words to convince investors that monetary stimuli would be withdrawn slowly, so his address at Jackson Hole was taken as market-friendly. The Fed chair underscored that inflation was temporary and there was no connection between QE withdrawal and the beginning of a federal funds rate hike as the central bank had set quite a different criterion for increasing borrowing costs. That’s good news for high-risk assets, but why the euro is growing isn’t quite obvious. 

The Fed’s intention to normalize monetary policy and the ECB’s passivity raised the discount on the overnight rate to borrow the euro instead of dollars earlier in August to the highest since 2020. To finance a carry trade, the euro rate is -0.48%, and the dollar rate is +0.09%. In 2021, carry trades funded by the euro produced returns for 17 out of 23 emerging currencies. Using the USD delivered losses for 15 of them. 

Carry trade rates

Source: Bloomberg.

The euro and the yen are currently the main funding currencies, and the global risk appetite’s boost is supposed to weaken them. At the same time, treasury yields are falling, which doesn’t let the dollar spread wings. However, EURUSD bears will be able to claw back losses if US labor stats exceed expectations. 

Bloomberg experts forecast that non-farm payrolls will grow by as little as 750 thousand in August. That’s more than in most months of the year but less than in June and July when the increase was +1 million.

US employment dynamics

Source: Bloomberg.

Weekly trading plan for EURUSD

Moderate US employment forecasts and expectations of the eurozone’s consumer prices boost to 2.8%, their highest since 2012, support EURUSD bulls as much as Jerome Powell’s address at Jackson Hole. The “buy the euro on rumors and sell it on facts” principle might be realized once European inflation data are out. Weak data on Chinese business activity and strong US employment stats can pressure the main currency pair. On the whole, the EURUSD‘s failure to hold above 1.18 will point to the buyer’s weakness and become a reason for sales.

 

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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