'NFP below expectations would delay Fed rate hike into next year, expose USD weakness' - Jameel Ahmad, FXTM

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.

After no Fed rate hike on September, do you think they are still in track to doing so before the year ends?

I was really confused by the Federal Reserve leaving interest rates unchanged in September with the US economic data remaining strong and the economy appearing ready for at least a small rate increase. The markets were crying for direction and confidence after a really heavy selling period at the end of last month, and the Federal Reserve raising interest rates would have provided some much-needed confidence in the global economy. Instead, interest rates were left unchanged and this has knocked investor sentiment even further because there is low confidence in global growth. 

With the Federal Reserve clearly citing global economic weakness as a reason for leaving interest rates unchanged and no indications being present at all that economic momentum is going to pick up in both Japan and Europe, while expectations are high for a decline in China growth to be a running theme for next year too – I am now unsure whether the Federal Reserve will begin raising US interest rates this year. It’s not that I don’t think the US economy is ready for an interest rate rise, it’s just that the global economy is still far behind the United States when it comes to economic sentiment and it feels like the US central bank might be waiting for others to catch up.

Do you expect this week's NFP to be an important event for the markets, or is it just all about the central banks at the moment?

I would say that the China PMI on Thursday is the major risk to market sentiment, but the NFP is still as important as it has always been. While the number of jobs created by the US economy over the previous couple of months have not got the USD bulls jumping around as they used to, the NFP is still the number one indicator investors are going to take into account when it comes to US interest rate expectations. If this Friday’s NFP is far below expectations and further concerns that the Federal Reserve will have to delay raising US interest rates into next year, the USD is definitely vulnerable to weakness.

With Draghi talking down the euro but the Fed hesitant on pulling the trigger, what's your forecast for the EURUSD?

It was obvious that Mario Draghi was going to attempt to talk down the Euro, and there is likely concern within the European Central Bank (ECB) over the recent appreciation of the Euro. I do remain bearish on the currency and think that any threats of further QE to Europe will install selling opportunities for traders. In regards to the EURUSD, there is still a complete contrast in both economic sentiment and monetary policy between the two central banks and I am also expecting further falls in the EURUSD. To be honest, the pair has only rallied on completely unclear US interest rate expectations and the jump in the EURUSD has nothing to do with sentiment improving in the European economy.

The USD/JPY gave up all its Post-Yellen's comment gains and it fell from 121.20 to levels below 120.00; what is your take on this pair?

Traders must pay close attention to the 200 Moving Average on the USDJPY daily timeframe, because you can clearly see that gains for the pair are continually being capped around this level. If I was bullish on the pair, I would definitely wait for the 200 Moving Average to be surpassed in the same manner I repeatedly mentioned in my reports about the USDCHF moving above 200 being a clear buy signal a few months ago. 

With the USDJPY clearly finding heavy resistance around its 200 MA, traders might continue to enjoy pullback opportunities on any rallies. The USD is still at risk to suffering losses due to a complete lack of clarity on the time frame for the Federal Reserve to begin raising US interest rates and the JPY might still continue to benefit from a risk-off trading environment from investors. This is one of the scenarios where both the technicals and fundamentals can align nicely and provide opportunities for traders.

Has AUD/USD bottomed? Do you expect gains or further lows?

I don’t think the AUD/USD has bottomed out quite yet and looking at the charts, traders enjoyed another sell-on rally opportunity just two weeks ago. Although the Reserve Bank of Australia (RBA) have now stopped repeating that their currency is overvalued and the central bank might have also paused easing monetary policy, the Australian economy is going to naturally face downside pressures with low mining growth and a probable decline in exports to China. 

The downside move below 0.70 was a critical psychological move for the AUDUSD bears and it has provided encouragement to look for further selling pressures in the future..