US dollar price forecast 23 September 2021 | EURUSD Fundamental analysis
Investors expected the Fed to announce QE tapering in November and start implementing this plan in December. However, the Fed should act faster. How will it affect the EURUSD? Let us discuss the Forex outlook and make up a trading plan.
Quarterly US dollar fundamental forecast
The Fed has not announced its QE tapering, and half of FOMC officials still expect the federal funds rate to remain unchanged until 2023, but the central bank is not going to turn off the path it took in June. The central bank should follow its plan of monetary normalization. And this circumstance made EURUSD’s reaction to the meeting of the Open Market Committee quite predictable. As I noted in the previous article, one should not be misled by the initial growth of the euro; it will still be followed by the strengthening of the US dollar.
The Fed communicates so often and so well with financial markets that it is very difficult to surprise investors. And yet the central bank has given s surprise. Jerome Powell noted that the reduction in the asset purchases could begin as early as November, and this does not require a stunning increase in September employment. Bloomberg experts predicted that the start of the QE tapering would take place in December. Moreover, given the connection between COVID-19 and employment, the issue of launching the process of removing monetary stimulus looks almost resolved. The decline in the number of coronavirus cases suggests that the September US jobs report will be better than the August one.
Dynamics of employment and number of COVID-19 cases in USA
Source: Nordea Markets
Jerome Powell signaled that QE would end by about mid-2022, which suggests that the Fed will finish the program in eight months, evenly cutting the volume of Treasury bonds purchases by $ 10 billion, mortgage bonds – by $ 5 billion. In 2013-2014, it took ten months … According to the Fed chairman, the central bank will complete QE faster than the previous one, as the economy has featured better progress now.
Although compared to June, only two FOMC officials were added to the number of supporters of the first increase in the federal funds rate in 2022, and there were nine of them, the median for 2023 rose from 0.6% to 1%. The committee expects the interest rate will rise to 1.8% by the end of 2024, which is equivalent to six monetary restrictions of 25 basis points each.
FOMC projections for federal funds rate
Source: Financial Times
Of course, everything can change shortly. A deadlock with a US debt ceiling, a downturn in the Chinese real estate market, and an accelerating spread of COVID-19 could force the Fed to postpone the first rate hike to 2024. On the contrary, persisting and worsening supply chain disruptions will make high inflation persistent and push the central bank to tighten monetary policy more aggressively in 2022.
Quarterly EURUSD trading plan
I want to be optimistic. I want to believe that the global economy will soon recover, and the Fed will implement its plans. If so, the EURUSD could reach a level of 1.14. However, the more realistic targets for the bears are at 1.168, which the price is about to reach, and 1.156. It is still relevant to sell the euro versus the US dollar.
Price chart of EURUSD in real time mode
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