USD influences public. Forecast as of 17.10.2023

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The lower the EURUSD falls, the more people talk about parity. The euro has plenty of vulnerabilities, while the US dollar is supported by Treasury and oil yields. Are the pair’s sellers overconfident? Let’s discuss this topic and make up a trading plan.

Weekly US dollar fundamental forecast

The EURUSD fall for 12 of the last 13 weeks allows large banks to release increasingly bearish forecasts. JP Morgan and Citi forecast parity between the euro and the US dollar, while Rabobank, Nomura, and RBC Capital Markets cut their estimates to $1.02. There are so many companies calling for sales of the main currency pair that the continuation of the downtrend begins to look doubtful.

According to JP Morgan analysts, despite the recent decline, the euro does not take into account a lot of negativity. Side effects from tightening financial conditions in the eurozone and the negative impact of geopolitics against the backdrop of stagnant economic growth will not allow the EURUSD bulls to strengthen. Citi experts believe that the USD has not yet fully taken advantage of the factor of American exceptionalism. They note that derivatives expect the Fed to cut rates more than the ECB in 2024. Their mistake could cause the EURUSD to fall further.

Dynamics of the euro against the US dollar

Source: Financial Times.

Goldman Sachs gave four reasons why the EURUSD downtrend is likely to continue. These include weak eurozone GDP growth, growing risks of a new energy crisis, the end of the ECB’s monetary restriction cycle, and the negative impact of the Middle East crisis on eurozone trade.

Military actions in Israel made oil the main driver of changes in the EURUSD rate. Fall of black stuff amid efforts by other countries, including the United States and Germany, to de-escalate the conflict allowed the euro to remain above $1.05 and begin to strengthen. Indeed, the EURUSD rally looks strange when Treasury yields rise along with US stock indices.

EURUSD is sensitive to oil fluctuations, which is in some way connected with the new status of the US dollar as a commodity currency. In fact, the growing correlation between the USD index and oil indicates increased Forex interest in the crisis in the Middle East. Geopolitics overshadows other events that are extremely important to the greenback.

For example, a change in the Fed’s stance which is becoming more and more neutral. Chicago Fed President Austan Goolsbee said that the central bank pays attention to trends, and the downward trend in inflation is very distinct. Single fluctuations don’t matter. This is a blow to the markets, which reacted with a EURUSD decline to the acceleration of September inflation in the US. Investors got carried away, expecting a resumption of the Fed’s monetary restriction cycle. According to Philadelphia Fed President Patrick Harker, it will not happen.

Weekly EURUSD trading plan

Without divergence in Fed-ECB monetary policies, the EURUSD decline is unlikely to continue. If the euro stays above 1.05 in the next few days, it will consolidate in the range of 1.05-1.07. Therefore, it will be reasonable to enter purchases on the decline and sales on the rise.

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 LiteFinance. 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.

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