'EUR/USD bears to exploit the opportunity of a below 1.10 close' - 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.

Greece said NO. So what's next?

Nobody wants Greece to leave the Euro but the decision from the Greeks to vote “No” over the weekend means that we have stepped closer to a Grexit than we have ever been before. This is something that has been continually under-priced into the markets, meaning worldwide futures remain at risk to further vulnerabilities. 

If anything, I personally believe that the decision to vote “No” over the weekend also means the discrepancy between all negotiating parties has stretched even further. The stance from creditors is likely to remain as resilient as ever, while Tsipras is sure to use the outcome of the vote to continue rejecting austerity measures. This means that a conclusion to this saga is still unlikely and that the markets will remain at risk to further downside pressures.

After two dramatic Monday openings, the EUR/USD has been able to fill the gap twice; What do you think about that? Is it a powerful signal for the EUR/USD?

Although the risks of a Grexit increasing do encourage a negative outlook on the EURUSD, technical traders are enjoying the opportunities the pair is currently offering. 

The 1.10 level is being viewed as a critical psychological level for the EURUSD and although we have opened trading for the past two consecutive Mondays below this level, this has only been for a short period of time and traders have enjoyed buying opportunities in the pair. 

It is only when the pair closes below 1.10 that the bears exploit the opportunity to price in further declines into the EURUSD and this is when we can expect a period of heavy selling.

What about China? Is there a significant risk of a collapse on the Chinese stock market? Which currencies could be the most impacted by such an event?

The major reason behind the near 50% rally in the Shanghai Composite Index earlier this year was due to the PBoC easing monetary policy on a regular basis and investors being attracted to unconventional monetary policy. The gains had nothing to do with increased confidence in the China economy but because investors are lured by cheap capital. 

I personally think what is happening to the Shanghai Composite right now provides an example of the risks of investing in stocks just because a central bank is easing monetary policy. I do not think we are going to see a collapse but the Shanghai Composite is erasing its gains from earlier in the year. All forecasts are for the China economy to continue facing downside economic pressures, which naturally means that the Shanghai Composite remains at risk to further declines moving forward. 

When economic news from China concerns, we regularly notice an improvement in demand for the JPY. At the same time, any concerning news from China would pressure the AUD, NZD and also have likely consequences on emerging market currencies around Asia like the Malaysian Ringgit.

Do you expect any news from the FOMC Minutes on Wednesday? Still on time for that highly expected Fed Rate Hike?

I would personally like the Federal Reserve to pre-announce that it will be raising US interest rates in September, or at least provide guidance towards when the rate hike will come. There are multiple benefits to doing this with the obvious one being that the markets would finally receive clarity on the timing of an interest rate rise, which they have been waiting for since the final quarter of last year.

There are going to be concerns that the Federal Reserve could use the continual Greece uncertainty as a reason to delay any possible interest rate hikes, although I personally do not think this will be the case. While the US economy is performing consistently, questions are still being asked about the pace of progress in both Japan and Europe while China is continuing to show declining economic momentum. We received two global economic downgrades as recently as June, and I think the Federal Reserve raising interest rates would provide confidence in the global economy with a much-needed boost.

It seems that gold is losing its safe haven status at least for now; What is your forecast for the gold in the next three months?

The price of Gold is being continually pressured by US interest rate expectations and unless the Federal Reserve announce that they will not be raising interest rates later this year (which I don’t expect) investors are going to continue viewing any upside rallies as selling opportunities. 

In regards to Gold losing its safe-haven status at least for now, I am in agreement because there has been no increase in buying appetite despite all of the continual uncertainty in Greece. What this really shows is that there is clearly hesitation from buyers to even consider purchasing Gold as we approach the timing of a US interest rate rise. 

The outlook for Gold remains weak, especially considering that I expect the Federal Reserve to raise interest rates in September. Investors will continue to view any rallies as selling opportunities and I personally see limited chances of Gold extending beyond $1200 unless there is a widespread USD sell-off. Likewise, it is going to require heavy USD demand for us to set a new 2015 low below $1142 with this ultimately meaning we are likely to continue ranging between $1160 and $1200 over the next couple of months.