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26.05.202106:52 Forex Analysis & Reviews: Greenback is projected to fall over coming 3 years. Causes and effects

Exchange Rates 26.05.2021 analysis

The Fed is successfully dealing with the inflation panic, returning last year's trends to the market. Demand for risk assets has been restored, which is bad news for the greenback as it is expected to keep moving in the downward trend against the basket of currencies. The negative consequences of the liquidity surplus are likely to weigh on the greenback. The commodity market may also exert pressure on the US dollar as energy and metal prices are growing steadily.

The US dollar index remains bearish. In the short term, it may break the low of 89.20 as of January 6th.

Exchange Rates 26.05.2021 analysis

Goldman Sachs expects the greenback to move in the downward trend until 2024 because of the Fed's reluctance to increase interest rates earlier as well as rapid global GDP growth.

International American corporations are likely to benefit from the fall of the US dollar and the acceleration of the world economy compared to US GDP. Cyclical stocks may rise sharply because the IT sector has the highest overseas earnings. Shares of semiconductor manufacturers are likely to show the best performance, since 80% of their earnings come from outside the United States.

On Tuesday, EUR/USD reached the January high. A successful vaccine rollout and the lifting of quarantine restrictions provided support to the pair.

Exchange Rates 26.05.2021 analysis

Mid-term risks for the euro's growth may become the changes in the Fed's monetary policy expectations.

On Thursday, the price index comes out. The US regulator uses the index as an indicator of future inflation growth. The Fed's officials may consider the possibility of monetary policy tightening if the reading exceeds 2.8% for at least 3 months according to Reuters.

If the price consolidates below the support level of 1.2170, the pair may well go down to 1.2125.

Notably, a sharp rise in Germany's IFO PMI failed to help the euro extend the upward movement. The indicator increased to 99.2 in May from 96.6, beating market expectations of 98.2. The reading advanced to the highest level unseen in two years. Nevertheless, traders started taking profits since everything depends on the greenback and its movement.

Anyway, the bullish trend on EUR/USD is expected. Short-term traders should not trade against the trend. After a brief period of profit taking, bulls become active again, which can push the pair to 1.2320.

Natalya Andreeva,
Analytical expert of InstaSpot
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