'EUR/USD could re-test 1.10 if Fed pushes back rate hike expectations' - Jameel Ahmad, ForexTime

   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.

How are the UK elections going to affect the Pound? Why is market so concerned about a hung Parliament?

The risk for political uncertainty always has the potential to impact a currency and this is not something that is only limited to the Pound.  Although it is true that Pound volatility has increased as the UK election edges closer; earlier this year the Naira encountered extra volatility as Nigeria’s election approached, and political uncertainty is also one of the major factors behind the weakening Lira as the Turkish election approaches in June. 

To be honest, investor attraction towards the pound suffered greatly throughout the first quarter of 2015.  While it was the end of UK interest rate optimism that dominated headlines, I do think investor sentiment was affected by an upcoming election throughout the opening months of the year, and I wasn’t too surprised to see the GBPUSD hit a five-year low at 1.45 only a fortnight ago. 

Due to the GBPUSD hitting a five-year low at 1.45 and rebounding strongly above the psychological 1.50 at the beginning of the week, it’s possible that the UK election has been largely priced into the pair for now. What I would keep an eye on is whether the pair can maintain itself above the psychological 1.50 level because if it does slip below, the bears could be encouraged to push the GBPUSD back towards its lows.

Bearing in mind that it is possible that the UK election has now been priced into the Pound, it could be the FTSE that faces the most risks with the upcoming election.

The FED is likely to remain on hold in rates, but to be slightly dovish on economy, do you expect the EUR/USD to retest the 1.1000 figure afterwards?

Personally, I still see EURUSD upside gains limited to USD weakness and you just need to take a look at the charts to see that the current upper range for the pair is just above 1.10. This does seem to be a psychological level for the EURUSD, just as the 1.50 level was for the GBPUSD over the past month or two. 

Can the EURUSD retest the 1.10 figure? Yes, but it is going to require some widespread USD weakness for the pair to extend beyond 1.10. If it does manage to break through and close above 1.10, then the sentiment towards the pair will be more bullish. 

In order for this to happen though, there needs to be widespread USD weakness and not only will this require a dovish stance from the Federal Reserve – but also pushed back interest rate expectations. I have always remained consistent in my mindset that the Federal Reserve would raise interest rates in September 2015 and it is likely going to require even further pushed back interest rate expectations for the EURUSD to jump bullishly.

How much of a Grexit do you think the EUR value has priced in? How far do you think we are from parity in EUR/USD?

This is a very interesting question and I think that the further the EUR can appreciate due to USD softness, the less priced in a Grexit is to the EUR. Due to the ECB’s QE program being scheduled to last until September 2016, I do think investors are going to remain hesitant towards purchasing the currency and the Federal Reserve turning hawkish is what is required for the EURUSD to be sent back towards parity. 

If the Federal Reserve speak dovishly about the US economy and push back interest rate expectations, then the EURUSD will continue to ignore parity talk. However, the ongoing situation in Greece is becoming a constant risk to investor sentiment and renewed concerns over the possibility of a Grexit would probably pressure the EURUSD back to its milestone lows.

Fitch recently downgraded Japan to A with outlook stable, do you see more bullish potential or UK elections will weigh on the pair GBP/JPY?

The JPY has had a really negative start to the week, with the Fitch downgrade being followed by weaker-than-expected retail sales. Although the Japanese economy is benefiting from the lower price of oil and its huge trade deficit is finally easing, I am surprised that its domestic data continues to lack momentum. 

While it is true that next Thursday’s UK election can weigh on the pair, I am actually keeping an eye on this week’s Bank of Japan (BoJ) minutes and whether there are any indications that the BoJ might consider easing monetary policy even further. I am not expecting this, but if this is suggested then the GBPJPY can appreciate even higher in the shorter-term. After the BoJ minutes are released, I will then be shifting my attention towards whether any UK political uncertainty can encourage bearish momentum in the GBPJPY.

Do you think the oil oversupply will be able to trigger a new bearish run on the oil prices? Is the 50$ area still a possible target in the short/mid-term?

I was really surprised that WTI managed to break through its resistance at $56 and record a new 2015 high just above $58 because the economic conditions for commodity remain largely unchanged. There is still a huge oversupply in the markets that is currently showing no signs of easing, which means WTI will remain vulnerable to sudden pullbacks. The $55 area is now seen as short/mid-term psychological support and the commodity would need to extend below here before we can talk about a potential return to $50.