How to inspire euro buyers? One could impose import tariffs and then cancel them. Donald Trump did the first; Joe Biden could do the second. The EURUSD may receive a new benefit. What will be the result? Let us discuss the Forex outlook and make up a trading plan.
Fundamental euro forecast for six months
Silence is consent. When in February the ECB actively resented the growth of European bond yields, threatening to increase the volume of asset purchases under the QE (which ultimately happened), the bond yields of the EU countries grew not as fast as now. In May, German bond yields should return to a level above zero for the first time since 2019, and Natwest expects the interest rate to hit 0.25% by the end of 2021. What’s the matter? Why is the European Central Bank silent? After all, the ECB understands that the euro is strengthening amid the euro-area bond yields rally.
In fact, a rally in bond yields can happen for right and wrong reasons. Due to slow vaccinations, a worsening epidemiological situation, and related lockdowns in the first quarter, the euro-area economy faced a double-dip recession. Now, thanks to the vaccination campaign acceleration (the EU plans that 70% of the adult population should receive at least one dose of the vaccine by the end of the summer) and the belief in the opening and the rebound of the economy, the situation looks very different.
For the ECB, inflationary expectations and real yields are important. In February, the first remained practically unchanged, while 10-year Germany’s real yield grew faster than the nominal. Today, German inflation expectations have jumped to 1.6%, the highest since 2018, while real yield is down. Three months ago, euro-area bond yields were rising for the wrong reasons. They were pushed up by the news from the USA. In May, positive economic data in the euro area became the main growth driver.
Yes, the inflation growth in the USA is much faster than in the euro area. Considering the difference between the inflation rates in the US and Europe, some analysts suggest shocking forecasts for the EURUSD drop below parity. However, let us be reasonable. The pandemic “was an unprecedented shock, it led to an unprecedented collapse, and we may have an unprecedented recovery,” Fed Vice Chair Richard Clarida said. It is hard to argue, especially looking at the controversial reports on US inflation and employment.
דינמיקה של EURUSD and core inflation difference
מָקוֹר: שוקי נורדאה
Just as Treasury yields supported the US dollar in January-March, European bond yields have strengthened the euro in April-May. But this is not the only advantage of the euro.
The White House has begun to speculate about a reduction in tariffs set by Donald Trump. The average US import tariffs in trade with China are currently 19.3%, with the rest of the world – 3%. The tariffs are clearly accelerating inflation, which reduces the likelihood that Congress will approve the new fiscal stimulus package proposed by Joe Biden. In April, import prices in the US jumped to 10.6%, the highest since October 2011.
EURUSD trading plan for six months
Lowering tariffs is good for export-led countries. Earlier, trade wars created obstacles not only for China but for the EURUSD bulls as well. I suppose some negative is still priced into the pair’s quotes. That is why the reduction in tariffs could support the euro rise to the previously indicated targets at $1.24 and $1.255.
תרשים מחיר של EURUSD במצב זמן אמת
תוכן מאמר זה משקף את דעת המחבר ואינו משקף בהכרח את עמדתו הרשמית של LiteForex. החומר המתפרסם בעמוד זה מסופק למטרות מידע בלבד ואין לראות בו מתן ייעוץ השקעות למטרות הוראה 2004/39 / EC.
Source: https://www.liteforex.com/blog/analysts-opinions/euro-is-positive-forecast-as-of-18052021/
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