US dollar price forecast 28 September 2021 | EURUSD Fundamental analysis
In late winter and early spring, the rise in the Treasury yields couldn’t break the EURUSD uptrend. However, the trend is down in autumn; bears control the market. Let us discuss the Forex outlook and make up a trading plan.
Monthly US dollar fundamental forecast
What is evidenced by the rally in 10-year Treasury yield above 1.5%? Has the market believed in the Fed’s monetary normalization? Has the US economy recovered from the pandemic is now back to the norm? However, investors could be selling off Treasuries amid the expectations of the default, the first in US history. After all, the result is more important than the reasons. And the result is that the Treasury yield rally lures investors to US assets strengthening the US dollar.
The last time a similar rise in Treasury bond yields took place was in February-March, sending the EURUSD down when most investors expected the further rise in the currency pair. At that time, the Fed’s passive attitude and mantra about the temporary nature of the PCE surge pressed down the bond yields growth. FOMC officials are still unanimously saying that the PCE surge will not be long-lasting, but at the same time, they are raising their inflation forecasts. New York Fed President John Williams argues that the headline highlighting the continued economic recovery is good, but the subtitle suggests that the central bank needs to be patient. This time, it is not about the QE tapering, the process of which should start in November, but about the federal funds rate hike.
Dynamics of USD and Treasury yield
Source: Trading Economics
Unlike in the February-March period, the greenback and sellers of US Treasury bonds have not only strong US domestic data and fears of further inflation growth as an advantage. The prospects of default are increasing, and even the Fed will be unable to help, according to Jerome Powell. John Williams also notes that the central bank has been unable to mitigate the Treasury’s failure to fulfill its duties. He urges lawmakers to remain reasonable. But Senate Republicans, on the contrary, blocked the House-approved bill that would suspend the national debt limit until December 16, 2022, and temporarily fund the government until December 3, 2021. It was rejected by 48 votes to 50. 60 votes were necessary.
The EURUSD bulls were not encouraged by the news that the World Bank raised its forecast of China’s economic growth this year to 8.5% from 8.1%, citing the successful fight against the pandemic, and the People’s Bank of China promised to ensure a healthy real estate market. As expected, the victory of the Social Democrats in the German elections was neutral for the euro. The Germans face weeks of coalition formation, and uncertainty is not a reason to buy regional currency.
Election results in Germany
Source: Financial Times
Monthly EURUSD trading plan
Thus, expectations of the start of the Fed’s monetary policy normalization and the aggravation of the government debt ceiling, which may ultimately lead to a default, support the EURUSD. If the price breaks out the support at 1.168, one could add up to the shorts entered earlier with targets at 1.1615 and 1.1555.
Price chart of EURUSD in real time mode
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