'EUR/USD still could move to parity this month' - 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.

We have plenty of inflation data coming this week from the UK, Eurozone and the US. How do you think it shall affect the major pairs? Do you foresee more USD strength coming out of this week?

The Bank of England (BoE) are extremely well-known for holding dovish views on UK inflation, therefore any further declines in the core reading could not only further push back interest rate expectations, but also increase the bearish sentiment on the Sterling.  Due to the European Central Bank (ECB) only recently launching its QE program, I am not expecting the Eurozone inflation data to correlate in unusual levels of market volatility. 

In regards to the potential for further USD strength, most traders are going to be looking at the inflation data this Friday as high-risk for the USD. Although inflation in the United States is known for being low, we have so far not noticed any real impact of the higher USD weighing on inflation expectations. For this reason, I do not think the current inflation levels will prevent the Federal Reserve from raising US interest rates by 20 basis points this year. 

Instead of looking at the inflation data, I am more interested in the retail sales report because there has so far been no correlation whatsoever in the improved job creation resulting in US consumers spending more. Further weak retail sales figures could actually lead to eased interest rate expectations from the Federal Reserve, which will in turn leave the USD vulnerable to profit-taking.

Will the sterling bearish momentum carry on until the UK election?

The GBPUSD is suffering from a complete lack of investor attraction, and I see this continuing until at least the conclusion of the UK election. For as long as the currency markets are absent from any USD sell-offs, I also continue to see potential for the GBPUSD to continue making new lows and eventually move towards the 1.42/1.43 area. 

The GBPUSD was already suffering from bearish momentum following repeatedly pushed back UK interest rate expectations, unexpected inflation risks as a result of the decline in commodity prices, as well as the upcoming election which is just further weighing on investor sentiment. Collectively, all these factors are just further underpinning the bearish Sterling sentiment.

Renewal speculations on a Fed rate hike at year end sends the EUR/USD down to 1.0500; What is your line in the sand before calling for parity? In this case, where is your selling price?

I can’t provide investment advice, however it is noticeable that the EURUSD has fallen below at least four critical support levels since the turn of the year. As the EURUSD has extended below these critical support levels, I have seen this as an indication that the pair has made the next turning towards parity. The next major support level can be found around 1.0334 and dropping below this level could prove crucial to the 1:1 move.

The ECB is not expected to change its monetary policy, with the good start that the QE has had. Do you expect any surprises from Mario Draghi? Do you expect any upgrade in the Eurozone GDP forecast?

The expectations for the EURUSD remain firmly bearish, and I still see the potential for the move to parity to possibly happen as early as this month. While the economic data in Europe has improved slightly, we still do not know whether this is a result of the ECB’s continuous policy measures having the desired impact on the EU economy – or a combination of the weaker euro and eased budgets following the decline in the price of oil. If it is the latter, then this is not necessarily positive for the Euro because issues such as stagnant economic growth and low inflation (major factor behind why the EURUSD has dropped from 1.39 to 1.04 in the first place) will remain. 

Draghi could come across as slightly upbeat and perhaps upgrade a few growth forecasts, however the most gentle reminder that the ECB’s QE program is set to continue until September 2016 will make traders very hesitant towards purchasing the Euro. I personally see any upside gains in the EURUSD being strictly limited to USD weakness and with any USD weakness being temporary so far, traders have been enjoying the opportunity to sell on rallies..

China will publish its Q1 GDP reading this week, forecast expect a slowdown to 7.0%; What it would mean for global stocks; and then, USD and gold?

We haven’t seen a correlation between China economic data and volatility in the Gold markets for quite some time, therefore I would not expect Gold to fluctuate after the China GDP reading later this week. Gold is far more likely to move in accordance with how the USD trades, and any pushed back US interest rate expectations could lead to the metal climbing back to $1200. 

How global stocks trade following the China GDP data is going to be an interesting one to watch, because stocks could still move to the upside even if GDP growth comes in below 7%. This would mainly be due to increased expectations that the People’s Bank of China (PBoC) will issue further monetary stimulus in the months ahead. Saying that, a GDP growth figure below 7% could still lead to declines in global stocks that could also set the tone for the following trading sessions.

One thing I will be keeping an eye out for if the China GDP figure disappoints, is whether we see any increased demand for the JPY. Over the previous couple of months, I have noticed the JPY bounce higher following weaker than expected economic data from China. Similarly, there have also been occasions where the JPY has edged higher following any declines in global indices.