Forex: now is the time to bet on the fall of the dollar against the euroJulius Conley 23 / May / 22 Visitors: 246
What an opportunity! The forex market has just opened a rather rare window of opportunity. Indeed, the euro is in the process of stabilizing above the symbolic $1.20 threshold.
In addition, the strengthening of the single currency against the US dollar may increase even more.
A brief overview shows that there is still room for improvement. (The exchange rates we use for this study are from the historical series of Factset, a US data provider).
From a record high of $1.5978 on April 22, 2008, the euro fell steadily until it dropped to $1.0378 on December 20, 2016.
The rebound that followed this extended bearish phase pushed the single currency up to $1.2503 on January 25, 2018. This threshold should be considered as market operators save memory.
If there is a strong chance that the euro will rise further against the US dollar, it is because, for once, fundamental analysis and chart analysis tell us the same thing.
An unmistakable sign: The European Central Bank (ECB) itself, through Christine Lagarde, President of the Governing Council, said at a press conference on Thursday 10 December that it is closely monitoring the strength of the euro.
Of course, the ECB does not have a single currency exchange rate target, but a rise in the euro could affect price stability. It remains to be seen how much the central bank will let the euro soar without reacting?
According to Keith Jaques, head of exchange rate strategy at Société Générale, the euro has been undervalued by an average of 9% against the dollar since 2011, after adjusting for differences in real interest rates and changes in purchasing power parity calculated by the OECD. And this despite the current account surplus in the euro area, which averaged 2% of GDP.
Thus, if interest rates converge on both sides of the Atlantic, according to the expert, the currency pair should rise in the range between $1.25 and $1.35. In this area, the euro will still be about 10% below OECD purchasing power parity, which is currently slightly above $1.40.
Patrick Artus has the same feeling: "we can expect significant dollar weakness," he predicted during an Internet conference organized by the Economists Circle on December 8, available on replay.
According to the chief economist at Natixis Bank, the increase in the US budget deficit creates an external deficit. And as the Biden administration tries to pursue very Keynesian policies, the need for funding will increase even more.
“Today it is Europe that finances the United States. Except that Europe will finance itself, in part, through the European recovery plan.
Europe will use its savings to finance itself, so it will stop lending its savings to the United States, so there will be a problem of financing the United States and, therefore, there will be a depreciation of the dollar,” explained the professor of economics.
Decisive euro exchange rate
For its part, graphical analysis can dispense with lengthy explanations to show that the euro is in the process of crossing a decisive course, breaking the downward diagonal in place since the 2008 peaks.
The chart opposite, on a monthly basis, shows that there is a strong possibility that the euro will start a bullish rally. "The EUR/USD pair should gradually rise to a 2018 high of 1.2558/1.2600, which is also a 61.8% pullback from 2014," said Tanmai Purohit, technical analyst at Société Générale.
Therefore, in our opinion, it is time to make a bullish speculative bet on the euro-dollar pair, initially aiming for the $1.26 threshold.
For this, there are various derivative or stock market products such as CFDs, Forex Moving Spot or Turbos to work on the foreign exchange market. For beginners, feel free to discover the various articles we have already covered on this topic.
We have compiled a list of brokers, that we recommend avoiding.