EURUSD bulls are set back because of the divergence in the monetary policies of the Fed and the ECB, energy crisis, and another COVID-19 wave in Europe. The euro continues falling, and the downtrend is not likely to reverse. Let us discuss the Forex outlook and make up a trading plan.
Weekly euro fundamental forecast
Monetary policy is not the only bearish driver for the EURUSD, which is down to a 17-month low. The ECB is to retain most of the monetary stimulus, and the euro has other soft points as well. On the contrary, the greenback has many advantages, including the Fed’s willingness to raise the rates in 2022. So, the EURUSD downtrend is natural.
Invesco claims that the main driver of the US dollar’s strength against the euro in the near future will be unpleasant surprises from the rest of the world. The company expects the main currency pair to drop to 1.1, which is far from the most bearish estimate. The US economic surprise index has recently outpaced the global indicator, which is one of the reasons for the greenback strengthening against major world currencies. At the same time, strong reports on retail sales and industrial production in the United States have widened the difference.
Dynamics of economic surprise indexes
The US retail sales increased 1.7% M-o-M, and JP Morgan raised the US GDP forecast from 4% to 5% for the fourth quarter. In the euro-area economy, things are not that bright. The rising number of COVID-19 cases makes some euro-area governments consider new restrictions. It is Europe that is currently becoming the epicenter of the pandemic, and this obviously affects the EURUSD trend.
Dynamics of EURUSD and the number of COVID-19 cases in USA and Europe
Source: Nordea Markets
Nordea Markets and Invesco name the deteriorating epidemiological situation in the euro area as one of the reasons for the euro’s drop, with the former company expecting to see the EURUSD at 1.085 by the end of 2022. Bank of America claims that the Fed has been preparing the markets for too long to start the QE tapering to avoid a repeat of the 2013 taper tantrum. However, the central bank cannot afford to delay the rate hike for that long. St. Louis Fed President James Bullard urges the Fed to be more aggressive to control inflation properly.
The suspension by German regulators of the Nord Stream 2 certification procedure backfired with a 15% rise in gas prices. Some analysts even suggest the euro area could run out of fuel in winter. The energy crisis and the related slowdown in the euro-area GDP are pressing the EURUSD down.
Furthermore, the topic of the national debt ceiling is returning to the United States. Janet Yellen calls on Congress to raise or suspend it as soon as possible, as the government will run out of resources to fulfill its obligations by December 15. The growing uncertainty increases the risks of the S&P 500 correction, which can support the US dollar as a safe-haven asset.
Weekly EURUSD trading plan
Therefore, monetary policy, pandemic, and energy crisis press the euro down while strong US domestic data and risks of a correction in the stock market support the greenback. The EURUSD bulls are set back. Unless the price shortly goes back above 1.133, the euro sell-off will continue.
Price chart of EURUSD in real time mode
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