Fundamental Euro Forecast: Bullish
- Last week was a curious one, with trader confidence upbeat as the US Democrats winning control of the Senate outweighed any concerns about the storming of the Capitol.
- That suggests further flows to come out of the safe-haven US Dollar into ‘risk-on’ currencies such as the Euro, the British Pound and the Australian Dollar.
Euro price set for further gains
It’s not often that the markets welcome a government with total control that promises to spend money in mouth-watering quantities. Yet, last week, the markets welcomed warmly the US Democrats winning effective control of the Senate, giving them the Presidency and both Houses of Congress. What’s more, Wall Street opened at a record high after Joe Biden was confirmed as the next US President even though, just hours earlier, there had been riots at the Capitol.
This suggests strongly that the upbeat market mood will continue into the coming week, and in the FX markets that means more money flowing out of the safe-haven US Dollar into currencies seen as riskier such as the Australian and New Zealand Dollars, the British Pound and the Euro.
Like to know more about how important sentiment is in the FX markets? Check out this article
For sure, there will likely be bumps along the road but over the course of a week when almost nothing is on the Eurozone economic calendar except industrial production and trade figures, the USD side of the EUR/USD equation will dominate business.
EUR/USD Price Chart, Daily Timeframe (October 22, 2020 – January 7, 2021)
Source: IG (You can click on it for a larger image)
As the chart above shows, EUR/USD has been climbing steadily since the start of November and it would now be a surprise if it did not hit 1.24 if not in the coming week then soon after – perhaps after some profit-taking and short-covering.
Incidentally, the coronavirus pandemic has slipped into the background in the markets generally on an assumption that it will be defeated by the new vaccines that have been developed. That too has boosted sentiment, with the Euro likely to be among the main beneficiaries.
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--- Written by Martin Essex, Analyst
Feel free to contact me on Twitter @MartinSEssex
