'Imposing sanctions on Russia will end with contra-sanctions for the EU' - 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.com

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 believe that the West's efforts to support Ukraine in the face of the Russian aggression are sufficient? How much will the Russian economy feel the impact of the sanctions in your opinion?

The situation in Eastern Europe is very sensitive and I do not want to make a distinction between who is on the bad or the good side. It is a tragic moment that is influencing all of us. Certainly, it is a great occasion for politicians to show their interest in global peace and gain PR exposure. Ukraine requires support, but mainly financial. Without help, the country can collapse. The West should use its experience to drive Ukraine through these difficult times. Will the Russian economy feel the impact of the sanctions? Honestly, what sanctions? So far, sanctions were imposed on individuals. I do not expect the West will impose strict economical sanctions since this will hurt not only Russia, but the whole European Union. Germany, the largest EU economy, buys 40% of their gas needs from Russia and exports are valued at almost 40 bln EUR. Other economies are interconnected to both Germany and Russia so severe sanctions are not in the interest of any government. The Russian economy, as well as the Ruble (the national currency), are already bleeding because of the conflict. Imposing sanctions on Russia will end with contra-sanctions for the EU, which could damage the economy very badly.

Do you agree that the banking union deal struck by EU leaders last week is flawed? Would the system, with ECB acting as single supervisor, be able to deal with a crisis as strong as the last one?

To be honest, I believe the whole European Monetary Union system is flawed with many deficiencies, which once in a while emerge. There is still a lot of space for improvement and the banking union deal can be treated as such one. It will allow the European Central Bank to see a broader picture and sound the alarm earlier to avoid catastrophe. So yes, the banking union deal should help the ECB to deal in a more efficient manner with any upcoming crises.

Despite the Fed decision to extend its tapering, why the EUR/USD is so resilient to fall. In your opinion, what is the EUR/USD fair price right now?

The EUR/USD is resilient to fall despite the Fed decision to extend tapering because of the ECB stress tests, banks paid back lots of LTRO. This drained excess liquidity and pumped the 1 month rate from 0.1% to 0.22%. As for the "fair price" of the EUR/USD right now, I believe it is the price that the market pays for it. Still, mid-term FRA rates point to 1.36 as the fair value at this moment while long term FRA rates to as low as 1.30.

The USD/JPY held the 101.30 level and now it is tradingabove 102.00; however Goldman Sachs analysts revised down its USDJPY target to 97.00 in the coming months, What is your take on it?

We expect the USD/JPY to inch back to the 104-105 levels later in the year, mostly due to the USD strengthening. As for Goldman and its 97 projection: it is not impossible but that would require further deterioration in China (and in consequence a deep corrective movement on global equities), which is tough to place on the timetable.