'EUR/USD: Our forecasts for the end-15 is 1.17' - Przemysław Kwiecień, XTB Poland

 PrzemysÅ‚aw
  KwiecieÅ„

PROFILE:
• Current Job:  Financial analyst at XTB Poland
• Career: Advisor to the Minister of Finance in Poland. Market economist at Millennium S.A, Poland.

View profile at FXStreet

PrzemysÅ‚aw KwiecieÅ„ is an advisor to the Minister of Finance of Poland. He has done research and forecasts on the economy and the fiscal policy, and cooperation and advising at the preparation of MF’s official documents (budget assumptions, convergence programme, debt strategy, euro adoption strategy). He excels in market research and advising to debt officers. He has also done research and forecasts on the Polish economy, the US and the eurozone economies.

EUR/USD remains trading at 3-month lows but the pair is hesitant to consistently break below 1.2350 area; following the recent upward revision of US GDP, do you expect the EUR/USD to extend declines?

The pair is indeed somewhat oversold plus market rates do not point to a lower rate in a near future since most of the USD yields have declined recently. However, for as long as the US remains on the recovery track with core inflation close to 2% we believe the Fed will start increasing rates in June and the rate differential will start to bite again. Our forecasts for the end-15 is 1.17.

Most of dollar’s latest strength is due to market speculation the US will be the first to announce a rate hike sometime during 2015, based on improving macroeconomic data. The FED however, keeps such announcement in the darkness. Do you expect an actual rate hike for the first half of 2015? If not, do you see market disappointment enough to trigger a long term bearish run in the greenback?

At the moment we see the first hike in June of 2015 - this seems to be the consensus at the FOMC right now even if the market does not price it. A risk to this scenario is core PCE declining to 1% area in which case the Fed might not increase rates at all. Since we do not know it now, investors need to pay a lot of attention to inflation expectations since this will shape the rethoric flowing from the FOMC in the near future.

The BoJ is flooding the world with yen and consequently, the USD/JPY is trading at multi-year highs; However recent BoJ minutes showed that there are dissenters about the monetary policy. Do you think this could moderate yen losses? If not, where is your goal in the USD/JPY for the middle term?

Yen is a tricky currency for me because there is no anchor to it. That is for USD or EUR we track market rates, for AUD or NZD commodities, yet for the JPY there is no "match" that would allow us to say that it should be x figures lower or higher. I think the BoJ will proceed at the full throttle it is just unclear where will that lead to.

How much will Japan’s efforts to trash its currency be hampered by Europe if it decides to do the same through QE?

I think the ECB will take different approach, with the credit creation remaining a primary target. For Japan the EURJPY plays some role but Japan competes more with continental Asia than with Europe.

With Spain now accessing debt below the German 5-year average yield on 10-year debt, is the European sovereign debt market out of danger, or are we heading for another blow-up?

Credit spreads have been depressed by the ECB and risk is very cheap, that's for sure. However, with the ECB still in the expansion phase I do not see the big money taking a risk of trading against the central bank. Longer term outlook is obviously blurred by the lack of structural reforms that are needed for a sustainable debt/gdp path.

How much longer until we see full-blown European QE? Are Weidmann’s comments earlier this week a sign that the Germans will return to dominating ECB decision making?

Unlike the majority on the market I think the ECB will explore every alternative before turning to the sovereign QE. Now with the oil prices tumbling the EMU receives a huge external consumption tax cut so there's no reason for the ECB to hurry.