Forex Analysis & Reviews: 23.04.2021 - Forecast for EUR/USD: Dollar...

23.04.2021 09:53 AM

Forecast for EUR/USD: Dollar demand soared due to Biden's new tax proposal. Euro now has a low chance of returning to a bull market.

Rumors have surfaced that US President Joe Biden plans to double the taxes of wealthy Americans. Plausibly, the rate will reach as high as 43.4%, provided that a 3.8% investment income is maintained. If, in some unimaginable way, this bill is passed by the Senate and Congress, income taxes from investments will be higher than the taxes of employed citizens. Biden has long pushed for equal taxes between the citizens, claiming that it is unfair that many rich Americans pay lower rates than middle-class workers.

"We are still working on what the new tax code will look like," White House spokeswoman Jen Psaki said.

Biden is expected to release his proposal next week.

As for other changes, it is expected that:

corporate tax rate will increase from 21% to 28%;
tax incentives of many private-owned companies will be removed;
income tax rate of individuals earning more than $ 400,000 will increase; and
inheritance tax will be expanded

Earlier, Biden announced a new program called "The American Jobs Plan", which should last as long as 8 years. It includes a $ 620 billion fund for infrastructure and transportation, $ 580 billion for manufacturing and $ 180 billion for research and development. An additional $ 400 billion will go towards caring for the elderly and disabled. The White House said corporate taxes will be raised to fund this $ 2.25 trillion program.

Unfortunately, all these are opposed by Republicans, who insist on maintaining the 2017 tax breaks imposed by former President Donald Trump. "Imposing high tax rates will reduce investment and cause unemployment," Chuck Grassley said.

With regards to macro statistics, the US Department of Labor reported that jobless claims increased to 547,000, but is 39,000 less than the revised figure last week. This means that the labor market continues to recover, and should continue doing so in the next months. Sadly, it won't be able to reach pre-crisis levels.

The less volatile four-week moving average also fell to 651,000.

For home sales, the National Association of Realtors reported a sharp drop in demand for second-homes as the data for March decreased by about 3.7%. As a result, sales were only 6.01 million year-on-year, the lowest level recorded since August. But compared to last year, the figure was up by 12.3%.

As for leading US indicators, they rose much more than expected. The overall index jumped by 1.3% this March, mainly due to the successful vaccination campaign and massive government stimulus. Apparently, these two helped many sectors to recover.

Today, traders should pay attention to the upcoming PMI reports from the Euro area, as well as on the scheduled speech of ECB President Christine Lagarde. The two will most likely influence the mood of the market.

In any case, a break above 1.2035 will result in a further increase in EUR / USD, plausibly towards 1.2075. But if the quote goes below 1.2035, the euro will drop to 1.1995, and then collapse further to 1.1945 and 1.1880.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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