'Fed to set expectations for two rate hikes this year' - John Kicklighter, DailyFX

   John
Kicklighter

PROFILE:
• Current Job:  Senior Currency Strategist for FXCM in New York.
• Career: Graduated from the Zicklin School of Business with a Bachelors degree in Finance and Investment. Specialized in combining fundamental and technical analysis with money management.

View profile at FXStreet

John Kicklighter is the senior currency strategist for FXCM in New York where he specializes in combining fundamental and technical analysis with money management. John authors a number of regular articles for DailyFX.com, ranging in topics from basic fundamental forecasts for the G10 economies and commodities to more complex subjects like the level of risk sentiment across the financial markets and the carry trade specifically.

John has actively traded since he was a teenager. His experience ranges from spot currency, financial futures, commodities, stocks, and options on all of these instruments for his personal accounts. John graduated from the Zicklin School of Business at Baruch College in New York with a Bachelors degree in Finance and Investment.

The EUR/USD's bounce from 1.0810 found selling interest at 1.0960 area, do you see further declines? What is your target for the next week and the next month?

Through the medium-term (for me between two weeks to two or more months), EURUSD’s fundamentals lean heavily towards the bearish view. There has recently been a ‘Greece crisis’ fear hanging over the pair which had actually prevented it from making progress – from either recovering or ironically extending its hefty decline over the past year. With this imminent risk lifted, we are now free to move on deeper fundamental currents. Relative monetary policy considerations heavily support the Fed as it leans towards a hike. The Greenback’s safe haven status is also an untapped opportunity for a bid should the recent pullback in capital markets prove more systemic. These catalysts – and the EURUSD’s progress – will depend on how these themes play out.

What do you expect for the next FOMC meeting? When do you think the Fed will hike rates?

If the Fed has not been shaken by recent data, I expect them to reinforce their effort to set expectations for two rate hikes this year – the forecast they offered at the June update. That is unlikely to mean a rate hike at this particular meeting, but it does mean setting expectations for a September first move.

The BoE Minutes came out with the voting against an interest rate hike unanimous as expected, but Carney hinted some hawkish comments prior to it. What do you think about the BoE rate hike timetable?

The BoE time frame for liftoff is likely very close to its US counterpart. Markets are more generous with their views for pricing in the BoE move – short sterling futures have pegged it around December – and this seems reasonable. If the UK 2Q GDP reading is encouraging, it may reinforce the hike before year’s end – and it may even hasten it. I suspect the next minutes will show up to three dissenting voices which likely sets the stage for the rate hike time frame the market is anticipating.

Has the Kiwi ended its downtrend?

The New Zealand Dollar is certainly in a downtrend. It has dropped aggressively against most counterparts and especially against the US currency. While the scope of its decline indicate a bear wave, the fundamentals are likely where we find continued declines. The RBNZ has cut rates twice this year in back-to-back moves and they are likely to ease further. As this expectation of rate cuts remains, speculative funds will continue to exit the market to avoid the subsequent capital outflows that occur as a function of rate changes. Of course, no trend – bullish or bearish – is a straight line.

Will the Gold trade under $1000 in the upcoming months?

If the Dollar continues to gain ground on the back of rising interest rate expectations, gold will continue to decline. The metal is still floating a premium that is a holdover from the run through 2011 founded on the belief that it was the only outlet for funds looking to escape fiat assets that were being universally devalued by stimulus-minded central banks. As the Fed moves to lift rates, it will undermine gold’s premium and further exploit its lack of natural yield. That said, if there is a Dollar rally founded on general and wide-spread risk aversion, the commodity is likely to level out and even gain alongside USD.