'No reason for EUR/USD to go above 1.3400 for an extended period' - Adam Narczewski, XTB Poland

 Adam
Narczewski

PROFILE:
• Current Job: Deputy Regional Director at XTB Poland
• Career: Market analyst at XTB Poland. Frequent guest of TV shows on TVN CNBC, CNBC Europe & World, Polsat News.

View profile at FXstreet.com

Adam Narczewski is currently the Deputy Regional Director and a market analyst at XTB Poland. He has explored the secrets of finance at Winthrop University in South Carolina (USA) where he acquired invaluable experience. He specializes in international markets, fundamental analysis and practical application of options and in investing. Trades forex on international markets and stocks on the Warsaw Stock Exchange. Adam is a candidate to the CFA designation, also a speaker on seminars regarding structured instruments, financial engineering and advanced financial instruments. Adam is a frequent guest of television programs in Poland - TV Biznes, TVN CNBC, CNBC Europe & World, Polsat News and radio show.

Could West’s harsher sanctions against Russia damage the EU economy or that of any other trade partner of the country?

Harsher sanctions against Russia should not damage the whole EU economy or trading partner. Sure, certain industries in some EU countries can be hurt in the short-term by Russian embargoes. I do not believe any economy will fall becuase of that, but certain sectors in countries like Germany and France (both countries invest billions of EUR in Russia) or Cyprus, Luxembourg and the Netherlands (Russian companies do business there due to tax optimization possibilities) can experience difficulties. Also, let's keep in mind that countries like Latvia, Lithuania, Estonia, Bulgaria or Finland are heavily dependent on Russian gas. For Russia though, the sanctions that can hurt the most is the ban to issue debt on the American or European markets. Capital from abroad accounted for 43% of all of the county's external debt. Without access to the European market, Russian companies (mostly banks) will have to come up with huge amounts of money (up to $43bln this year) to pay off their debt. The central bank has $478bln of currency reserves, so for some time it can intervene on the market in order to provide hard currency to companies. Maybe Russian companies will try to borrow in Asia? Anyhow, the amounts in play are big and this could lead to problems and higher cost of borrowing. In the worst case scenario, Russia could experience a serious financial crisis.

Do you expect BoE’s Inflation Report, due out next week, to point to a more hawkish tone for monetary policy?

No, I do not think so. The most recent macro publications confirm the British economy is doing well. The market expects the MPC will hike interest rate soon which in turn support the appreciation of the pound. Government officials try to cool the situation down by sending mixed signals. A hawkish Inflation Report could strengthen the Pound even more and this is certainly not the scenario the government wants.

What market moving events do you see in August?

August can be a very interesting month. What I wonder about is if the corrective movement on stock markets will deepen. QE is expected to end in October and usually by that time a sell out of stocks occurs. This time it can happen sooner as traders could get rid of equities in August already and do not wait till the Fed announces the end of QE.

Do you see a game change in EUR/USD below 1.3400?

I do not see a reason why the EUR/USD would go above 1.3400 for an extended period of time. Sure, a rebound can happen lifting the EUR/USD up to 1.3500 but in the next couple of weeks it should decline much lower. The confirmation would be breaking 1.3350 and if so, 1.3100 will be the next target for the market.

After falling around 300 pips from July 15 highs of 1.7190, the GBP/USD is now trading below 1.6900. Do you see further declines? What are your targets?

What I see on the GBP/USD chart right now is just a corrective movement in an upward trend. Government officials are doing everything not to send hawkish signals, but an interest rate hike coming up should be driving the cable higher. So it can trade for some time below 1.6900 but I see it heading higher to 1.7200 (I am not excluding a target of 1.7500 within 2-3 months).

Is 2014 the USD year?

Of course it is! The US Dollar is the main player on the currency arena and it should be this way till the end of this year. The macro situation of the US has improved so the fundamentals are good to trade it, not to mention the ending QE program. At this moment it is really hard to expect a change of trend in the appreciating Dollar. Besides the pure macroeconomical factors, the weakness of the Eurozone and the problems of China, the talks about the Euro or the Yuan replacing the USD as the global currency had diminished. So, 2014 is not just the year of the USD, it can be even called the "comeback of the USD" year.