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Andreas Zanin
Analysis | October 5, 2021

EUR/USD: monthly forecast

We have been bearish of the EUR in previous posts and view the EUR as a big bear trend. We expect  far more weakness with bounces being selling opportunities. Our view of the fundamentals sentiment and technicals below:

Monetary Policy Outlook: The US is on course to reduce stimulus this year and will probably do it next month. In terms of the ECB (as we have noted in previous posts) they have no intention of reducing stimulus and have moved to increase it recently.

The ECB cant reduce stimulus due to the poorer nations of cannot take higher borrowing costs. ECB stimulus relative to GDP is far bigger than in the US and the euro interest rate is also negative which is long term euro bearish.

Economic Growth: Economic growth favors the US both now and going forward US GDP was only 2% below trend in Q2, 2021 compared to a huge 6.4% below trend for Euro-area GDP, and expectations for Euro zone economic growth going forward have collapsed going forward which we can see on the chart below:

The EU economy will also be hit harder by rising energy prices than the US UK or Japan. The chart below shows that previous euro recessions have been come quickly after commodity price spikes:

Geo-Political: We have slowing global growth which historically favours the USD and we also have global stock markets which are speculative bubbles – if stock markets break lower, this will create risk aversion which favours the safe-haven USD. Finally, are seeing a big slow up in Chinese economic growth and this will impact on the zone especially Germany which is heavily reliant on China for exports.

Despite the fall in the EUR on last weeks, COT Net trader’s positions large speculative funds held a long position. In fact, they have been net-long since the Euro starting falling from 1.2200. We expect on the next data for large funds to switch to the short side and add to their positions which will weigh on the euro going forward.

Technical analysis

On the monthly chart, we have broken the 20-month moving average (Green Line) and now expect any rallies to fade back to it and the 1.1700 level, target on the downside is support at 1.1000. on the daily chart we have first resistance at 1.1665 (August Lows) and then the big round number at 1.1700. Any rallies are selling opportunities in our view with a stop behind the 20 day moving average.

 

Research provided by LearnCurrencyTradingOnline.com

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