'The Fed should not fear a strong USD' - 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

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.

The US corporate society is arguing against the strong USD, do you think it will pressure the dollar to stop its strengthening?

The corporate lobby is pretty strong in the U.S but complaining or arguing against the strong dolar will not change a thing. The FED will follow its policy and look at the whole economy, not just the corporate side of it. On the other hand, if the central bank will think of a strong USD as a factor that can extend the interest rate hike in time, then this factor can slightly weaken the American currency in the short-term. Still, chances for a major depreciation of the dollar in the upcoming months are really low.

Is the USD strengthening a real threat for the US recovery? Will the Fed take actions or do you think they are comfortable in terms of inflation?

I do not think a strong dollar is a big threat. The American economy is not as open for trade as the European, Japanese or Chinese economies. That is why the FED should not fear the USD. Even more, if the American currency keeps strenghtening because of monetary policy easing in Japan and Europe, the FED could expect that those recovering economies will "amortize" the influence of a strong dollar against their currencies.

To what degree do you see the decline in US inflation as transitory and linked to oil price declines, and to what degree do you see those price declines feeding through to disinflation in core prices?

Inflation in the U.S should remain low untill about the third quarter of this year. Afterwards, it should rebound, especially that it is hard to observe a decline in prices in good or services other than fuel and gasoline.

Do you think is time to call for a top in US indexes, considering the global economic slowdown is already weighting in US recovery?

This is is a hard one. From one side, it is pretty risky to buy stocks at the current level of indices. Additionally, the recent quarterly results of U.S companies are not so great. In this case, the risk of a downward, corrective movement is high. From the other hand though, the American economy looks the strongest and healthiest among major economies, which in turn can keep the relatively high prices on Wall Street. Those holding equities should start considering shorting index futures in their investment portfolio.

What are the risks to the long USD short EUR consensus? Should you fight the ECB?

If you fight the ECB, you are getting into the ring against a heavyweight player. So it is better to avoid that fight. To make it even more clear, you are not fighting just one central bank, but two: if the FED hikes interest rates in June, the EUR/USD will keep going south.

So, what's your forecast for the USD against its major competitors?

Ahead of us a year of surprises but ok, let's try this: for the end of 2015, I forecast the EUR/USD at 1,10, GBP/USD at 1,50, USD/JPY at 120. As for the Swiss Franc, I believe that fundamentals will be back in the game and the EUR/CHF will end the year above parity. In this case, I see the USD/CHF at 0,97 by the end of 2015.