EUR/USD: will 2020 be favorable for the dollar or the euro


As the western world moves away from Christmas, experts continue to evaluate the prospects for EUR/USD in 2020.

According to a consensus forecast of analysts recently surveyed by Bloomberg, the euro will rise against the US dollar to $1.16 by the end of 2020.

It is assumed that the loss of investor interest in US stocks amid a slowdown in the US economy, lack of support from the Federal Reserve's monetary expansion and overbought S&P 500 will expand capital flows. They will flow from the US to the EU. Hints of this have already appeared in the fourth quarter. For the first time since the middle of last year, the net demand for ETFs oriented to European securities entered the positive zone.

In 2019, the S&P 500 index increased by more than 28%, which is near the levels of 2013 (+29.6%) and 1997 (+31%). However, history shows that the next year, after such an impressive rally, the stock index usually lost ground and increased only by 6.6% on average. On the one hand, the loss of investor interest in American securities is an important trump card in the sleeve of bulls on the euro. On the other hand, if you refer to history, then the slowdown in the S&P 500 is not a reason to refuse to buy the dollar.

If we study the behavior of the US currency (starting from 1978) after the inversions of the yield curve of the Treasuries, the last of which took place about 4-5 months ago, and try to transfer the dynamics of the USD index from the past to the future, then in the next three months the dollar may rise in price by 3 .5%. This will run counter to the majority opinion on the market, which will accelerate the decline in EUR/USD. Experts at Nordea Markets believe that such a scenario is quite possible, and predict a collapse of the euro to $1.0750.

However, not everything depends solely on the US currency. If Washington and Beijing manage to resolve trade disputes, and the eurozone economy embarks on a recovery path, the European Central Bank will have an excellent opportunity to follow in the footsteps of the Riksbank and abandon the policy of negative interest rates, which has many side effects. It is noteworthy that the derivatives market has already begun to lay in the quotes the probability of an increase in the deposit rate in 2020.

Skeptics argue that the European regulator will start the process of normalizing monetary policy only if it wants to get deflation, but in reality everything will depend on the state of health of the eurozone economy.

If the divergence in US and EU economic growth narrows, the Fed, instead of sitting on the sidelines, will begin to talk about lowering the interest rate, and on the contrary, the ECB will raise it, then EUR/USD will go up. In this regard, the consensus forecast of Bloomberg experts on the growth of the euro to $1.16 looks quite convincing.

The material has been provided by InstaForex Company -