US dollar price forecast 24 September 2021 | EURUSD Fundamental analysis
The EURUSD bears are less aggressive amid a rise in the global risk appetite, but they still dominate the market. Let us discuss the Forex outlook and make up a trading plan.
Weekly US dollar fundamental forecast
The Fed’s willingness to act according to the plan convinced investors in the soon end of the QE and brought optimism to the market. Investors believe now that the US economy is able to live through the monetary normalization, Delta, and Evergrande default. A slowdown in GDP growth is just a slowdown; it is not a recession. The Dow Jones has performed the best two-day rally over the past six months, and the 10-year Treasury yield is up above 1.44%. Selling off safe havens allowed EURUSD bulls to cover a part of losses caused by Jerome Powell.
IHS Markit reported that the US PMI was down from 55.4 to 54.5 in September; however, the indicator still signals the US economy’s expansion. Yes, the OECD lowered its forecast for US GDP for 2021 from 6.9% to 6%, but the expected growth in the US is still higher than both in the euro area (+5.3%) and the global economy in general (+5.7%). The US exclusivity will continue supporting both the Fed’s plans and the US dollar strengthening in the medium and long term, although the euro could well be corrected up in the short term.
The US households are sitting on a lot of savings. The amount of cash and cash equivalents on household balance sheets rose to $16.5 trillion in the second quarter, up from $12.7 trillion in the fourth quarter of 2019. When the pandemic is over, Americans will spend all that money. Therefore, investors grow confident in the US economy’s strength, and the risk appetite is up. Besides, the growth of the US stock indexes allowed the EURUSD bulls to ignore a sharp drop in the euro-area PMI to a five-month low in September.
Dynamics of euro-area PMIs
The euro bulls have also been encouraged by the hawkish tone of the BoE, stating that the UK inflation could be above 4% in the second quarter of 2022. If so, the regulators will be more likely to raise the Bank rate earlier than currently expected, supporting the pound. The sterling strengthening sent other European currencies up.
But still, the ECB looks like an odd man among other central banks. Only the Bank of Japan and the SNB stick to similar ultra-easy monetary policies, including negative interest rates. Their opponents are most of the other central banks in advanced economies, including the Fed. Divergence in monetary policies proves the stability of the EURUSD downtrend. Therefore, the current euro rise is just a correction.
Weekly EURUSD trading plan
It is clear that an increasing number of FOMC officials are starting to worry about high inflation. The Fed’s September forecast for core PCE at 2.3% in 2022 was the highest for the next year since such estimates started being published in 2007. The Fed will raise interest rates at least six times by the end of 2024, while the ECB will only start this process in three years. The EURUSD downtrend should continue. Therefore, I suggest using the current correction to sell the pair on the rebound from the resistances at 1.1775 and 1.179 or on the breakout of the supports at 1.1725 and 1.1715.
Price chart of EURUSD in real time mode
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