EUR/USD Forecast: A Weaker Dollar Should Be Expected in 2021

2020 was a very illustrative year in terms of market sentiment. When the world first witnessed the Coronavirus outbreak in March, the market was upset by the impact and magnitude of the pandemic, pushing investors to run to the dollar for safety.

However, three months ago, a similar revision took place in the opposite direction. As pharmaceutical giants Pfizer announced news of a vaccine, the dollar fell, as there was no need for a safe haven for investors anymore. After the European Central Bank (ECB) announced financial packages at the heat of the pandemic, this support was considered ‘positive’ by the market in a shocking turn of events. And, precisely, because of often-surprising market reactions to unforeseen events, my starting point remains that you should take price estimates with a pinch.

Nonetheless, it is expected that the direction of the USD will be easier to predict under Joe Biden.. First, Biden is expected to spend more to stimulate the US economy (post-COVID), which will increase the debt position of the US. Second, the markets count on the president to deal with trade disputes more diplomatically.

For now, the chart has not yet shown a real downward outlook. If the euro-dollar exchange rate undercuts the highly important, long-standing containment zone of 1.1876/1.2042 USD — to which bulls had futilely rushed into for a long time until the breakout in December — then it would slowly begin to form a bearish scenario.

Even then, it could be just a correction which results in a pullback to the breakout level. The long-term downward trend lines will define the breakout level (the lower one is currently 1.14 US Dollars). From that point, the euro bulls may take off, and so, should the EURUSD fall within the range between 1.14 and 1.1876 USD, there will be a consolidation for the medium and long-term, in which case the market should be left to short-term traders.

Rising beyond this range (1.14 to 1.1876), the bulls still have every chance of reaching the larger target price of 1.2555 USD. This is because as long as the Euro-USD trend lasts, the big players in the FX market usually prove themselves to be quite resilient — they come out victories even against changes to their previous political standpoints.

The medium trend for the currency pair has turned downwards. The target zone between 1.2082 and 1.2066 broke out. The price has now consolidated below this target zone and reached the second target zone of 1.1922 - 1.1906. The week opens with a downtrend and the price should fall considerably lower if the bears consolidate below the second target zone. In that case, the next lower target will be in zone 3 [1.1762 - 1.1746]. The RSI indicates an oversold market, so it is not advisable to short at current prices. Best bet: wait for a correction and enter new sell trades within the zone of 1.2008 - 1.2069. Long-term traders could wait for a price above the range from 1.14 to 1.1876 before going long.