'Don't rule out EUR/USD parity next month, it could just require one more incredible Non Farm Payroll' - Jameel Ahmad, ForexTime

   Jameel
   Ahmad

PROFILE:
• Current Job:  Chief Market Analyst at ForexTime (FXTM)
• Career: Worked as strategic research analyst for an international brokerage firm. Holds a BA (Hons) degree in Business Studies with Accountancy & Finance from the University of the West of England, Bristol, UK

View profile at FXStreet

Jameel Ahmad is the Chief Market Analyst at ForexTime (FXTM) Limited. Specialising in global development and the analysis of emerging markets, he is frequently quoted in a variety of leading global media outlets including the Financial Times, Wall Street Journal, Reuters, Yahoo, MarketWatch, Nasdaq, Sky News, and the New York Times. 

Having worked on a variety of projects in the UK, US, Middle East and across Europe within the fields of banking, international finance and asset management, Jameel has a strong background not only in forex analysis, but also in risk management and project management.

US Employment week: which NFP figure do you think could make the Fed think about hiking the interest rates in June?

I think this week has the potential to be an extremely exciting one in the currency markets. All it is going to require is another impressive NFP report (275k and other) to encourage optimism that the Fed could still raise rates in June, which also means traders will rush once more towards the USD. At the same time, if there is anything in the NFP that provides a reason for the FOMC to remain hesitant and cautious towards raising interest rates – then we could be in for another sudden round of USD profit-taking.

Is the United States economy in good shape for real? In your opinion, what the US is missing to be in a good shape?

This is an interesting question. Although the US economy has made substantial progress over the previous nine-months (with job creation being exceptional) – I am still very surprised that consumers are not spending more. We have the strongest consecutive job gains in decades and consumer confidence readings at levels not seen since before the financial crisis, but retail sales are still very weak. If the US economy is going to step to the “next level” and provide the FOMC with confidence that it can begin raising interest rates, then I do think we need to see stronger consumer expenditure.

Aside from unexpectedly weak retail sales figures, the US economy is performing strongly and releasing consistently robust economic figures. There has been a little bit of concern emerging regarding a possible economic slowdown after some softer data, but I think this is slightly unfair. At the end of the day, after 3Q GDP was confirmed at an annualised 5%, it would be extremely ambitious to expect the US economy to continue pumping out such incredible figures and there is nothing to be concerned about last Friday’s GDP figure being 2.2%..  

It seems the EUR/USD rally was capped at 1.1050 as it's now trading around 1.0800; do you think the EUR/USD correction is over? Do you see parity?

Upside gains for the EURUSD are really limited to USD weakness. This means the bullish potential for this pair is bleak, and it will require a dramatic USD sell-off for the EURUSD to return to the level it was at in January (around 1.15), let alone the end of last year (1.24).

I am slightly confused at the recent optimism around Europe that economic data is beginning to improve, because the concerns regarding low inflation and stagnant economic growth are still rampant and is exactly why the ECB has eased monetary policy so much over the past nine months.

I do see the EURUSD reaching parity, and I am not ruling out it happening as soon as next month. Although the FOMC surprised no-one when it expressed that it will not rush into raising interest rates, it could just require one more incredible NFP report (around 300k or over) to inspire traders to rush to the USD once again. At the end of the day, the Federal Reserve are going to begin raising interest rates before the overwhelming majority of central banks can even contemplate the idea.

GBP/USD is seeing volatility levels unprecedented since the Scottish referendum, but has stopped its long-term bearish run the past two weeks. Do you think the cable can resume its downtrend for good?

It must be pointed out that although the UK fundamentals are strong, the only reason for the upside gains over the past fortnight has been USD weakness. Heading into April, there are a wide-variety of reasons for traders to be hesitant towards purchasing the pound. For example, not only are Bank of England (BoE) policymakers switching their tone from dovish to hawkish every week, but this election is going to be extremely close. We are still over a month away until the election, but sterling volatility is already at its highest since the Scottish Referendum. Additionally, the most recent YouGov poll has just suggested that Labour has overtaken the Conservatives in the lead, and I don’t think it’s a coincidence that the GBPUSD slipped by 150 pips the next trading day. The chances of political instability are going to continue to rise as the opinion polls switch, which means that traders are going to become flustered. As long as there is not a USD sell-off and the USD can remain consistent throughout April – I am not ruling out the GBPUSD falling to 1.43.

USD/JPY is again around 120.00; after the disappointing economic data in Japan, do you expect the pair to break above 122.00 in the short term?

Not in the short-term. It should be noted that it does appear that the Bank of Japan (BoJ) are finished easing monetary policy, which would mean JPY weakness is priced into the pair. This means that if the USDJPY is going to meet those milestone highs once again, it will require USD strength. This also means that the Federal Reserve will need to raise US interest rates and if the FOMC statement is anything to go by – this will not be anytime soon.

I actually prefer the pair’s chances of declining below 119, than I do in rising above 120. At the end of the day, the JPY is a safe-haven and if the bearish momentum in oil accelerates once more, or if the recent escalation in Yemen spreads further – traders could find a very good reason to approach a safe-haven.

The Yemen conflict doesn't seem to have a big impact in the crude supply. Will the oil price keep going down? Which level could be lower enough to put pressure on the OPEC to cut the barrel production?

Traders found an excuse to push the price of crude oil higher after the unexpected news regarding Saudi Arabian led coalition airstrikes in Yemen. It should be noted that Yemen is only around the 39th largest global producer of crude oil, and it was primarily its geographical location and hypothetical concerns that a conflict in Yemen might disrupt oil production throughout the Middle East that led investors to buy. I do believe the price will continue moving lower because the economic conditions are strictly against higher prices and this is no quick fix to an overproduction of around 2 million barrels a day. Additionally, if Iran’s economic sanctions are relaxed we could see a further 1 million barrels being pumped into the markets and this would encourage traders to push the prices even lower. Many believe that $42 is the floor for WTI and I also think that if we slipped below here, there would be serious concerns over where the price could end up. Therefore, a move below $42 would intensify pressure for an OPEC cut, which would need to be reciprocated by non-committee members because OPEC only represents about 30% of the overall supply.