Faster tapering of the US QE than the market currently expects, as well as a better position of the US economy compared to major competitors, support the EURUSD bears. Let us discuss the Forex outlook and make up a trading plan?
Weekly US dollar fundamental forecast
The US exclusivity is a good reason to buy the greenback. Furthermore, the Fed is about to start scaling back the monetary stimulus. The US stock indexes are rallying up, which signals the US economy’s strength, while other countries’ GDP a slowing down because of the Delta. Therefore, the EURUSD rise looks controversial. The euro was up to $1.18 as the USD longs, a record since March 2020, were exited, but the growth looks more like a correction rather than a trend.
According to Commodity Futures Trading Commission data, US dollar net long positions against six world’s major currencies have been increasing for four consecutive weeks, although before that, speculators preferred net shorts for 16 weeks. Under such conditions, bad news often leads to sharp pullbacks but is unlikely to break the trend.
What country can challenge the USA? The euro area is unlikely to defeat the COVID-19; the countries will have to put up with the virus, just like ordinary flu or other diseases. They will vaccinate as many people as possible but maintain social distancing measures. They will have to manage new strains of the coronavirus and new waves of the pandemic. The euro-area economic rebound in the second quarter seems to be temporary, and the GDP growth should be slowing down in the future.
China is hit by floods and the Delta. Based on the exports, retail sales, industrial production, and fixed-asset investment in China, the Chinese GDP is about to decline. Yes, consumption can recover quickly when the COVID-19 outbreak is over, but this doesn’t seem real so far. At least, oil traders are selling rather than buying on fears of a slowdown in Chinese demand. Divergence in the trends of the US stock indexes and the black stuff proves the theory of the US exclusivity, supporting the greenback.
Dynamics of Dow Jones and Brent
Source: Trading Economics
Furthermore, the FOMC officials are talking about tapering the US QE, so the EURUSD bulls are to face a disaster. Boston Federal Reserve Bank President Eric Rosengren said he believed the standard was already met for inflation, which is running slightly above the Fed’s 2% target. If there is another strong labor market report, the US central bank will begin to reduce its monthly asset purchases. The $120-billion-a-month quantitative easing program should be completed by the middle of 2022.
Weekly EURUSD trading plan
It took the Fed 10 months to get rid of QE last time, but then, inflation was not so high, and the labor market looked weaker. In addition, the central bank was seriously concerned about the rise in Treasury yields due to the 2013 taper tantrum. Now, the process of withdrawing the monetary stimulus may go faster, which will become an additional driver of the US dollar’s strengthening. In the short run, if the EURUSD falls below the support at 1.1765, it will continue going down to at least 1.174. I suppose traders would prefer to wait and see ahead of the release of the FOMC July meeting’s minutes.
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.
- 2020
- 2021
- 7
- 9
- Additional
- advice
- analysis
- AREA
- article
- asset
- AUGUST
- Bank
- Bears
- Black
- Blog
- boston
- Bulls
- buy
- Buying
- Central Bank
- challenge
- China
- chinese
- comments
- commodity
- competitors
- consumption
- content
- continue
- Coronavirus
- countries
- COVID-19
- currencies
- data
- Delta
- Demand
- disaster
- diseases
- Dollar
- driver
- easing
- Economic
- economy
- Euro
- expects
- exports
- Face
- fears
- Fed
- Federal
- federal reserve
- Federal Reserve Bank
- forex
- future
- Futures
- GDP
- good
- Growth
- High
- HTTPS
- image
- industrial
- inflation
- investment
- IT
- July
- labor
- logo
- Long
- looked
- major
- March
- march 2020
- Market
- Market Report
- months
- net
- news
- official
- Oil
- Opinion
- Other
- outbreak
- Outlook
- pandemic
- People
- president
- Preview
- price
- Production
- Program
- proves
- purchases
- quantitative
- Quantitative Easing
- Rates
- Recover
- reduce
- report
- reserve bank
- retail
- Run
- running
- sales
- scaling
- Short
- shorts
- SIX
- Slowing
- So
- Social
- social distancing
- start
- stimulus
- stock
- Strains
- support
- talking
- Target
- temporary
- The Future
- time
- Traders
- Trading
- treasury
- Trends
- us
- US Dollar
- US economy
- USA
- USD
- virus
- wait
- waves