The euro (EUR) and the US dollar (USD) represent the currencies of the two largest global economies and as such the euro to us dollar currency pair is the most widely traded amongst retail and institutional investors.
Under normal conditions, the euro faces upward pressure due to its trade surplus, and the dollar from increasing risk perception. Both currencies are greatly influenced by the wider global geopolitical landscape. In this pair, the euro is the base currency, and the dollar is the quote. It means that, at today's rate of about 1.182 (as of 22 October, 2020) it would take $1.18 to buy €1.00.
The EUR/USD outlook for the remainder of 2020 will be significantly influenced by the upcoming US elections, Brexit negotiations and the potential of further restrictions due to surging coronavirus cases in both economies.
With election day looming in the US, many traders are predicting a ‘blue wave’ election win for Biden and the democrats. They believe this will lead to a rapid increase in fiscal stimulus and a more strategic approach to the pandemic.
Under normal economic conditions this would tend to strengthen the euro, as traders migrated from the safe haven USD but with the rapid rise of Covid-19 cases in Europe, increasing restrictions on the European economy and stalled Brexit negotiations, it is unlikely that even a smooth transition of power would strengthen the Euro.
A prolonged court battle to declare the winner of the election is not impossible and would likely lead to a decrease in global economic confidence. If that scenario happens it would almost certainly lead to a decrease in the euro vs dollar forecast as investors typically move assets to safe havens, such as the USD, in times of uncertainty.
Forex news: EUR/USD
Recent EUR/USD analysis shows that the pair has moved above its 50-day moving average of $1.1788. Although this recent strengthening of the euro is noteworthy, it is likely a small window of optimism that the US would reach an agreement on a new stimulus package before the upcoming election and traders should consider that the pair fell nearly 1 per cent in the week October 12-18 when considering a long term EUR/USD prediction.
The recent euro vs dollar trend upwards was driven by the increasing optimism of late summer that the European economy would be able to outperform the US economy until the end of 2020.
This optimism has been brought to an abrupt halt as many countries in Europe have been forced to enact restrictions to curtail the spread of the virus. Recent economic data released from the EU also shows the economic union is in deflationary territory, which increases the likelihood of further easing of monetary policy by the European Central Bank (ECB).
The ECB is tasked with maintaining price stability in the Eurozone and as the euro rises relative to the currencies of its major trading partners in its trade weighted index it is highly likely that the bank will intervene to reduce the negative impacts of increasing restrictions. Loosening of monetary policy would serve to weaken the EUR/USD outlook.
EUR/USD analysis and sentiment
The late summer reprieve from coronavirus led to increasing optimism in the ability of the EU to weather the economic turmoil caused by the pandemic, without the need for further lockdowns. This optimism has been quickly tempered by the quick surge of the second wave and the lockdowns which have ensued along with stalled Brexit negotiations and the uncertainty surrounding US elections.
Needless to say, these factors are contributing to an increasing global risk-off sentiment which will serve to weaken the euro to dollar forecast as investors seek safe haven options such as the USD.
Forex forecast: EUR/USD
The most recent analysis by institutional investors showed that long positions in the pair have been dominating futures markets since March. Though the total volume of long positions has been tapering off since mid-September, while short positions are rising sharply.
This indicates a powerful decrease in confidence in the EUR against USD. Coupled with the decreasing likelihood of a trade deal with the UK before the end of the year and the increase in risk-off sentiment, the EUR/USD prediction is beginning to favour the USD.
However, the latest EUR/USD price forecast by FXStreet still looks bullish and will remain the same as long as the pair is trading above the critical 200-day moving average, today at 1.182. The next major point to follow from the bullish perspective is 1.191, which is the high from September 10 2020. Again, the two major factors that may turn the EUR/USD downwards are:
Resurgence of Covid-19 cases in Europe.
Inability of the EU economy to outperform the US economy as expected, which could damage the EUR/USD rate.
According to analysts from Trading Economics, the EUR/USD price rate is expected to stay right where it is now at 1.18. Looking forward, they believe the Euro to US dollar rate will slightly decrease to 1.17 during the next 12 months.
EUR/USD: buy or sell?
The factors described above which are influencing the EUR to USD forecast all indicate that given current conditions the euro will decline relative to the dollar making the pair a strong buy. There is the possibility that a smooth election in the US could decrease perceived risk in the short term leading to a short-lived increase in the value of the EUR but the likelihood of this being prolonged is minimal.
As we move towards the end of a tumultuous 2020 the EU economy is likely to suffer from further lockdowns, increasing the likelihood of ECB intervention, prompting institutional investors to further reduce their long positions in the pair.
Any strength that may have come for the EUR from a smooth election in the US will be negated by the shuttering of European economies and the potential of the Eurozone outperforming the US economy by the end of the year is bleak.
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