Trading Themes Prospects in 2021

 

After the volatility and surprises that we saw in 2020, many investors were ready for a different 2021, but some aspects of the past year have crossed over into the new year. The volatility witnessed in 2020 is still there in 2021 and the world is still fighting the coronavirus pandemic. However, there is hope of an economic recovery as countries roll out COVID-19 vaccination campaigns  and look forward to reopening their economies.  Let’s dive into what we expect of the euro.

 

Euro needs support from Dollar to strengthen  

 

Entering 2021, we will continue to see the euro maintain its strength in the first half of the year, and the high of 1.2500 in February 2018 is in sight. But looking at last year, if the euro can continue its strength in 2020, the dollar needs to cooperate on the downside. The economic recovery within the eurozone in the second half of 2020 was better than the United States, which fueled the euro’s rally. However, the United States may overtake the eurozone’s economic recovery this year, taking away the euro's massive advantage.

 

In terms of monetary policy, the ECB’s moderate and space-limited policies will not be able to guide the euro down sharply even if the stimulus scale is expanded again. Therefore, the European Central Bank’s influence on the euro may be limited. But it should be noted that if the euro continues to appreciate sharply, which could prompt the already "vigilant" European Central Bank to take action and  ease the  situation, although the possibility of direct intervention is low.

 

In addition, even if the United Kingdom finally achieved Brexit, it does not mean that the EU has gotten rid of its influence since then. After all, Brexit is about two parties. If the Brexit agreement is not materially beneficial to both parties, the Eurozone economy will also face inconveniences and challenges, and these will show with time. On the whole, the euro may still maintain its comparative advantage in the first half of this year, but in the end, the competition between the euro zone economy and the United States will be the key to determining which one performs better between the euro and the dollar.

 

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