Investors’ appetite for risk continues to dictate the rules of the game in financial markets. EURUSD is ready to reach the six-month forecast announced in November of 1.105 in six weeks, and the nine-month forecast of 1.12 in nine weeks. Let’s discuss this topic and make up a trading plan.
Weekly Euro fundamental forecast
The Santa Claus Rally is about to begin! The S&P 500 is very close to a new record, pulling EURUSD up with it. The basis for the upcoming rally was a MasterCard report, according to which retail sales in the United States grew by 3.1% from November 1 to December 24. Consumers are reaching for their wallets, the American economy is strong and inflation is slowing. These are all signs of a soft landing, allowing the futures market to forecast a federal funds rate cut in March with an 83% probability.
Euro buyers were not at all frightened by the pessimistic opinion of 48 Financial Times experts. They believe the eurozone economy is already in recession and its recovery will be slow and problematic. GDP will expand by a modest 0.6% in 2024, below the 0.8% expected by the ECB. Not to mention the forecast of +1.2% from the IMF. The main obstacles, according to experts, are too high ECB rates, geopolitical factors, Donald Trump’s return to power and insufficient investment.
There is another paradox on Forex when a weak economy cannot stop or hinder the process of currency strengthening. All because of the global appetite for risk, which is actively growing. Investors are wondering where the more than $6 trillion raised by money market funds will go. They provided excellent returns during high rates, but there are better options now. There is a good chance that this amount will flow into the stock market, which will allow the S&P 500 set new records.
Risk appetite continues to dictate the rules of the game. Its greed-driven rise continues to reduce the relevance of the US dollar as a safe-haven currency. Initially, demand for profitable assets was driven by inflation outpacing Treasury yields, which kept real debt rates low. Now inflation has fallen and real rates are slightly positive, but expectations of monetary expansion by the Fed may shift them into negative territory. This is a reason to buy such a profitable asset as shares.
Thus, it is not the euro’s strength, but the dollar’s weakness that makes EURUSD forget about the correction. At the same time, a busy economic calendar and a lack of liquidity during holidays can lead to sharp fluctuations in the main currency pair. The six-month forecast of 1.105 is practically fulfilled in six weeks, and the nine-month forecast of 1.12 may prove correct in nine weeks.
Weekly EURUSD trading plan
The Forex market changes too quickly for long-term traders to profit. Back in late November, I recommended a buy-and-hold euro strategy to them, suggesting that EURUSD could rise to 1.18-1.2 next year. It’s difficult to buy during corrections now, since they simply don’t exist. Perhaps it will be possible to enter purchases when the price rebounds from the levels of 1.1065 and 1.1095?
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