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How High Will EUR/USD Reach in 2020?

August 31, 2020 by

EUR/USD remains the most popular currency pair on Forex. Unsurprisingly, retail traders are interested in its future. Like many others, you might be asking a question — how far can it still go? On the one hand, we have a breach of the massive long-term trendline running since 2008. On the other hand, there isn’t much time left in 2020 for the uptrend to progress without hitting a major overbought threshold. In this post, I try to analyze the current situation for EUR/USD, offer some forecast scenarios, and ask you to vote in a poll to express your opinion on this currency pair movement for the rest of the year.

Fundamental factors

EUR/USD strength

  • On August 27, the Federal Reserve has updated its long-term monetary policy goals, switching from a direct inflation target to an average inflation target. This means, the Fed will be holding interest rates low for longer after the periods of the inflation undershooting its 2% target. Such a policy will effectively stall USD appreciation against currencies with central banks that employ simple inflation targeting.
  • The economy of the European currency union countries declined much slower in the first two quarters of 2020 compared to the United States. GDP went down by 3.1% and 15% in Q1 and Q2 (annualized rate) in the eurozone. This economic indicator decreased by 5% and 31.7% (also annualized) in the United States.
  • The eurozone’s total COVID-19 death count is lower than that of the USA so far.
  • Looming Presidential elections in the United States provide additional uncertainty regarding the country’s political and economical future.
  • So far, European Central Bank used quantitative easing less than the Federal Reserve. ECB’s balance sheet rose from €4.7 trillion (at the end of 2019) to €6.4 trillion (as of August 21, 2020) while Fed’s balance sheet increased from $4.2 trillion to $7.0 trillion during the same period.
  • Trade wars (especially the one with China) hold the potential to hurt the US dollar’s status as the world trade’s currency.

EUR/USD weakness

  • During significant worsening of market sentiment (a so called “risk-off mode” or risk-aversion), the US dollar still gets more demand that the euro. This means that EUR/USD might go down if the global pandemic situation worsens significantly or if some new economic or financial turmoil hits the markets.
  • Something unpredictable and negative happens in the eurozone (e.g., a banking system collapse or a deadly natural disaster).

As you can see, from the fundamental analysis point of view, there are few factors playing in dollar’s favor. The strongest ones and the more real ones point in favor of EUR/USD bulls.

Technical analysis

On the weekly chart, EUR/USD has broken out of a long-term trendline that had been acting as a resistance since 2008. After a minor consolidation above the trendline, the currency pair is now free to continue upwards. While it can definitely form a bearish trend along the former resistance, using it as a new support, EUR/USD might still reach very high compared to the current rates before going down.

EUR/USD - a Long-Term Trendline on Weekly Chart as of 2020-08-29

Poll

To me, It doesn’t look like EUR/USD will be able to go too far up this year. My current forecast is that the currency pair may go up to the 1.25–1.30 range after experiencing some sort of correction first. And what are your thoughts on this situation?

How high will EUR/USD go this year?

View Results

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The poll will expire on November 1, 2020.

If you want to share your opinion about the future course of the EUR/USD currency pair, please feel free to do so using the commentary form below.

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