'GBPUSD can still trade below 1.50 if Pound sentiment weakens' - 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.

All year long you've been defending the benefits a Fed rate hike would have for the global economy. Are you convinced this is finally happening on the December meeting?

Never say never to a US interest rate hike in 2015! In all honesty, even I was beginning to lose confidence in the idea of the Federal Reserve raising US interest rates after the confusing statement in September when the central bank announced its concern about global growth. 

I continue to maintain that the Federal Reserve being in a position to carry out its repeated pledge towards raising interest rates in 2015 at a time when global sentiment remains at risk due to concerns over China entering a deep economic downturn, depressed commodity prices and continual concerns over the pace of recovery in both Europe and Japan, is a huge benefit for the global economy. You also have to consider how this would limit demand for both the Euro and Japanese Yen, while also pressuring these currencies which would be positive for both economies when it comes to inflation prospects and export competitiveness. 

The US economy is continuing to perform consistently with job creation being the star performer of the US economy. If there was ever a time to begin raising US interest rates, it would be now because growth could dip lower in the future and most would then be anxious that the central bank missed an opportunity.

Considering the current trend: how low can the EURUSD go?

There is a continual divergence in both economic and monetary sentiment between the United States and Europe which is encouraging sellers to attack the EURUSD. This wide divergence is likely to stretch even further with the Federal Reserve expected to raise US interest rates next month and the ECB threatening further stimulus, which would encourage an even further bearish outlook on the EURUSD. As long as there are no swerves from the Federal Reserve and the ECB continues to strongly threaten further stimulus, there is no limit for how low the EURUSD could go and many still feel parity at some point is likely. 

Parity for the EURUSD in 2015 is still looking possible, although the chances of this would increase substantially if December sees both the Federal Reserve raise US interest rates and the European Central Bank (ECB) launched further QE.

And what about the pound? Will the cable target levels below 1.50?

Traders of the GBPUSD on the daily timeframe would have noticed the main 50,100 and 200 Moving Averages limiting gains in the pair for months and providing lucrative selling opportunities to traders. The 1.53 area of the GBPUSD is now looking like a possible top, with the extension below 1.51 a few weeks ago suggesting the pair can still trade below 1.50 if Pound sentiment weakens substantially. 

If the ECB do carry out further monetary easing next month and if this flattens the Euro, traders should remember that the EURGBP would be at heavy risk and the interest rate differentials in the pair could force the Bank of England (BoE) to further delay raising UK interest rates. This means that traders could look out for opportunities in which BoE policymakers talk down the potential for the Pound.

Is the Gold downtrend just related to USD strength or is there anything more on it?

The direction of Gold trading throughout 2015 has been heavily dictated by US interest rate expectations. With optimism over the potential for a US interest rate increase emerging again, the scope for potential losses in Gold have not necessarily completed. There have been some signs of Gold losing its safe-haven appeal this year with investors refusing to purchase the commodity even when fears of a possible Greece exit from the Eurozone intensified to its peak, but I would point out that there has been a widespread weak sentiment towards the commodity markets. 

Once the Federal Reserve finally get this first interest rate increase out of the way, traders will stop this fascination with the Fed and investors could then begin to monitor whether Gold notices any increase in attraction when uncertainty arises.

Despite the uncertainty about the Fed monetary policy, the stock market is still looking strong. Do you foresee a good end of the year for the equities?

Markets saw the indication from the Federal Reserve that an interest rate rise is looking likely in December positively, which improved sentiment towards the stock markets. I do firmly believe that this would be a positive step for the global economy, however other reasons for the current gains in stock include expectations that the European Central Bank (ECB) and Bank of Japan (BoJ) could still ease monetary policy even further. 

As we have seen on multiple occasions in the past, any easing of monetary policy is attractive for investors when it comes to stock market sentiment. I personally think that investors should move away from this correlation, because both the Japanese and European economy are still looking weak despite monetary easing being loosened to a wide extent. What may encourage investors to look towards the equity markets is if the price of oil sharply rebounds, because this would improve GDP potential for so many exporters of the commodity.