If the US economy loses its exclusivity, and the economies of China and the euro area perform well, will the EURUSD downtrend turn up? Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
China is fighting with the COVID-19, but the pandemic is rapidly spreading across Europe and the United States, whose economies are slowing down. What period are we to face? Is it similar to early spring of 2020? Or is it about late summer 2021? Of course, there won’t be any lockdowns, neither there should be a recession. Nonetheless, the drop in the US manufacturing PMI means that people worry about the Delta. What happened next, in April-December with EURUSD, we all know very well. Does history repeat itself? Will the downtrend reverse soon?
The euro area PMIs are also declining, but they are still close to their 21-year high. The optimism about the services sector exceeds the forecasts for the manufacturing one. It means the coronavirus influences GDP growth less than the supply shortage. According to ING estimates, the euro-area GDP could repeat its record of 2% Q-o-Q in the third quarter. If the euro-area economy continues to outperform the US growth, the EURUSD bulls will have a reason to go ahead.
Dynamics of euro-area PMIs
I don’t understand the roots of such divergence. The level of the fully vaccinated population in the States and the EU is approximately the same, 51.4% and 55.3%, the number of COVID-19 cases is growing in both regions. Furthermore, the Bundesbank warns that its forecast for the expansion of Germany’s GDP by 3.7% may not come true. The first days of the recovery turned out to be worse than expected, and the return of the pandemic will press down the euro-area economy in the autumn. The reason might be the surge in the tourism industry in the south of Europe, but it is a temporary factor.
Another thing is China. In the four days from the outbreak on August 20 to the moment when not a single new infected person was identified, China managed to test about 100 million people. Beijing deserves respect. Amid positive news from Asia, the oil prices have been up. The oil rally is a bearish driver for the USD, which is quite responsive to the recovery of the US and global economies.
Source: Investing, LiteForex
Still, there is one more factor concerning the impact of the euro-area and global economic growth on the EURUSD, which makes me doubt that the pair will go the same way as in the April-December period last year. It is the Fed’s monetary policy. In 2020, the Fed was often called crazy because of the colossal volume of liquidity and the sharp decline in the interest rates to zero. In 2021, the central bank is about to finish the QE and discuss interest rate hikes. This is a viable scenario unless Jerome Powell is scared off by the Delta.
Weekly EURUSD trading plan
I believe the current growth of the EURUSD is just a correction resulted from exiting the US longs. Investors worry that the Fed Chair will relate its monetary policy to the COVID-19. I don’t think he will. If the pair is up to 1.18-1.1815 before Jackson Hole, one could enter shorts at favourable prices.
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.