'If Scotland votes YES, the Pound could dive even to the 1.5000 area' - 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.

What announcement do expect from the Fed at the September meeting, following the disappointing NFP reading for August?

The September meeting will be interesting as the dot-chart (expectations of Fed members regarding the main interest rate in the near future) will be published and I want to focus on this. What can be expected from it? In June, the consensus was that the main interest rate will be at 1.00%-1.25% at the end of 2015 (which we assume 3-4 hikes). The market has already discounted such scenario, hence the appreciating dollar. That is why we should see a concentration of dots at the 1.25% level. The scenario for 2016 is not clear yet but we can assume another 2.5% which means 5-6 interest rate hikes. The most important will be the last column of the chart (the longer expectations). The consensus dropped from 4% to 3.75% in March but recent inflation readings (higher than expected) should move the forecast back to 4%. If that happens, yields on 10y bonds should increase and stock markets will experience a corrective movement.

How do you assess ECB's monetary policy action last week? Do you think the moves were correct or do you agree with former ECB executive board member Jürgen Stark that ABS purchases will turn the central bank into a "bad bank"?

The ECB acted sooner than many expected as it seemed the TLTRO - the major component of the easing introduced in June - did not work as intended. Banks, anticipating interest rate cuts in the future, were reluctant to join in the TLTRO at a higher rate and the ECB felt it was forced to move on with a cut to cut off that speculation.The Bank showed in June it liked packaged actions so it's not that surprising they decided on the ABS QE which had been seen more as a matter of time not fact anyway.Stark's comments are misplaced, the ECB will take minimal credit risk and will be adequately rewarded for it and actually there are other, more serious worries, like credit bubbles, that could develop over time.

How effective will the broadening of West's sanctions against Russia be in your opinion? Do you see the possibility that they ricochet and considerably damage the European economy as well?

The sanctions against Russia are long-term and they can actually weaken the potential of the Russian economy. The most endangered will be the petrochemical sector, which needs capital for further development. I expect Russia to answer with contra-sanctions but they will rather be symbolic and should not affect the EU economy in a greater way.

Do you think the EUR/USD's break below 1.3000 is for sure? What is your target in the short term?

One can never be sure on the forex market! But yes, it seems it will be hard for the EUR/USD to trade above 1.3000 in the upcoming weeks. The ECB monetary policy, the ending QE program by the Fed along with capital moving to USD-denominated traded assets make the American currency a strong candidate to become the winner of the year. The EUR/USD should be trading below 1.3000 (tests of this resistance and occasion on which it will be traded above it will happen) but the decline should not be large. Rather, I expect a consolidation with steady appreciation of the USD towards the 1.25 level within the end of the year.

In case of a victory of the 'Yes' in the Scottish referendum, what will be the Pound performance? Targets in the GBP/USD?

Now, this is a great story that could be traded but there is a lot of risk involved. Polls show the yes/no votes are very close. If it happens that Scotland votes "yes" and will separate itself from the UK, for sure we can expect great movements on the Pound. There are many uncertainties though. Nobody knows how the UK would split the debt with Scotland, if Scotland would remain (join?) the EU and NATO or what currency it would use. Still, if Scotland votes "yes", the Pound will be under great pressure (because of the mentioned uncertainties) and it could dive even to the 1.5000 area.

Weak Euro but also BoJ measures that drive the Yen down... what will be the EUR/JPY direction in the weeks to come?

The EUR/JPY is an interesting pair to trade. It was always much more volatile than the USD/JPY and in the recent weeks, central banks (the ECB and the BoJ) are adding even more flavor to the market. Still, I believe the measures to drive the Japaneses Yen down introduce by the BoJ are much more straightforward and direct. These measures have more direct effect on the currency. So despite the collision of factors that weaken both currencies, in the upcoming weeks I expect the EUR/JPY to head north towards this year's highs just above 143.00.