'Recession in Germany could force ECB to accelerate QE' - Adam Narczewski, XTB Poland

 Adam
Narczewski

PROFILE:
• Current Job: Deputy Regional Director at XTB Poland
• Career: Market analyst at XTB Poland. Frequent guest of TV shows on TVN CNBC, CNBC Europe & World, Polsat News.

View profile at FXStreet

Adam Narczewski is currently the Deputy Regional Director and a market analyst at XTB Poland. He has explored the secrets of finance at Winthrop University in South Carolina (USA) where he acquired invaluable experience. He specializes in international markets, fundamental analysis and practical application of options and in investing. Trades forex on international markets and stocks on the Warsaw Stock Exchange. Adam is a candidate to the CFA designation, also a speaker on seminars regarding structured instruments, financial engineering and advanced financial instruments. Adam is a frequent guest of television programs in Poland - TV Biznes, TVN CNBC, CNBC Europe & World, Polsat News and radio show.

Do you think the Eurozone is teetering on the brink of a new phase of the financial crisis? Does the ECB have enough power to avoid a new outbreak?

I believe many do not realize the dangers that area head of us. The scenario that recession will be back in Europe is becoming more and more realistic. The most recent data from Germany (the largest and most important economy in the Eurozone) was really weak. Taking into account the slowing Chinese economy, it will be hard fro Germany to take growth path. So even though macro data from France, Spain or Italy will be slightly better, with the recession in Germany, we can have problems in the whole Eurozone. Such scenario should force the ECB to accelerate the introduction of the government bond buyback program. It is hard though to expect that this factor would protect the Eurozone against recession.

What will be the initial market reaction to the Fed's first rate hike in your opinion? Which countries do you see most affected by the Fed's monetary policy normalization?

It all depends if the first hike will be a surprise to the market, or not. I doubt it will be. Also, what will matter is the amount of the hike. Janet Yellen is pretty straightforward in her statements and the first interest rate hike by the FED should not shock the markets. In this case, the upcoming hike will be discounted by the market. Still, the most affected will be emerging markets like Turkey, Brazil, Hungary, Poland or Indonesia. These countries are characterized by a large number of foreign capital on their debt markets. What could have happened (potentially) after the FED hikes interest rates, we could have experienced in the first quarter of this year.

Will the second sales tax hike in Japan, if implemented next year as planned, have just a short-term impact on domestic demand or could it do serious harm to the country's economy?

This year's sales tax hike turned out to affect the economy not only in the short-term but it also weakened growth in the second half of the year. We cannot rule out the possibility that the government will not introduce any further hikes. If the sales tax is hiked again, I would expect the Japanese government to present some kind of easing program that will alleviate the effect of higher taxes.

Is it time for EUR/USD rebound? has the pair bottomed at 1.2500 as the US Dollar index is showing signals of reversal?

The EUR/USD is in a downward trend and I do not see it reversing. Sure, after such a long period of declines the market wants to catch a breather and rebound. I do not expect more than a corrective movement, which can take the EUR/USD up to 1.2900 at the most. I do not see a reversal of trend coming up with the weakness of the Eurozone and the factors affecting the USD (improving US economy, talks about interest rate hikes).

USD/JPY at 108.00. Recent USD weakness sends the pair to 108.00; but do you agree that the pair remains bullish in the longer term? Targets beyond 110.00?

Yes, I am targeting the USD/JPY above 110 in the middle term. Not only the strong USD is the driver but also the struggling Japanese economy. I also do not see why the Japanese government would like to strengthen the JPY as the current situation is like adding gasoline to fuel for Japanese exports.

Are stocks market entering in correction mode? DJIA down to 16,700 while the S&P fell to 1,930 key level.

Stock markets are already in a correction mode. The question is how large this corrective movements will be. The quarterly results publications season has just started and the outlook is not so bad. Also, we are entering the last quarter of the year during which investment and hedge funds will not like to see their assets falling in value. As for the DJIA, it is heading towards 16,300 while the S&P500 towards 1900. If markets do not turn around quickly, those two mentioned levels will be crucial supports. If broken, the corrective movements could extend, possibly turning into reversal of trends (the situation in Europe could add fuel to the fire).