'JPY still with potential to further gains on safe-haven appeal' - 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.

EUR/USD broke above 1.1200 level in the last days; do you see further bullish potential or do you see a back below 1.1000?

 

This has been an incredible period of volatility for the FX markets! We still see the majority of gains in the EURUSD as limited to USD weakness, hence why the pair has exploded into the upside after such a tight trading range between 1.07 and 1.10 to begin the year. I personally find it quite unbelievable to think that there are headlines regarding the possibility of the Fed dropping US interest rates into negative territory less than two months after the historic interest rate rise. What I also find incredible to get my head around is that US interest rate policy is being seen as the reason behind the volatility, and quite simply I do not think this is the case. This volatility has been led by ongoing concerns over depressed oil prices and fears over slowing economic growth globally, which have been in and out of the headlines for over a year at the very least. 

 

Regarding the Eurodollar, we still see the area between around 1.12 and 1.1390 as potential selling zones for traders. The potential pullback on the pair will be quick, so this possible opportunity might not still be around by the time this interview is published. I personally think that there will be internal unease from the ECB regarding the sharp euro bounce, but the truth is that there is nothing they can really do about it if traders continue to throw away the dollar. Unless Dollar demand returns or there is a sudden resumption of calmness in the markets, it might require some ECB verbal intervention to drag the Eurodollar back below 1.10.

Has the GBPUSD bearish trend of the first weeks of the year ended for good? Or will it continue to fall on Brexit referendum fears?

 

We still maintain a bearish standpoint on the British Pound, and we feel that an extension of a risk-off period in the FX markets could still continue to haunt investor attraction. There are a lot of uncertainties remaining for the UK economy, including ongoing weakness in inflation and that there is actually no limit to how far it is possible to push UK interest rate expectations back even further into the distance. These are enough risks to the UK currency, before we even begin to speculate on what possible impact a Brexit referendum could bring to the Pound. 

 

To be honest, it is incredible to think how long this uncertainty has been in the air for, and no one is still the wiser regarding whether a vote is actually going to take place! Some might want to point out that the British Pound has already fallen hugely, but the bitter truth is that there is no way to pinpoint what the economic impact would be if the UK were to hypothetically leave the EU. It is the risk over the possibility that corporations could simply threaten to leave the UK if the country were to exit the EU that makes me believe that the Pound still has potential uncertainties ahead, and this is before taking into account that a vote has still yet to be even announced.

According to the TD Securities team, the USD will peak in 2016 as the Federal Reserve will hike 3 more times this year until 1.25%. Do you agree with this statement?

 

I personally thought that the spokespeople from the Federal Reserve who were confidently and publically talking about the potential for four US interest rate hikes this year were in dreamland. At best, the expectation for three US interest rate rises is still very ambitious when you take into account how the US central bank spent so long telling us that the pace of interest rate rises would be “gradual”, and the other fact that they were so hesitant to just raise interest rates once. 

 

The bottom line is that the Fed might still express confidence in the US economy when it comes to employment and a commitment to raising interest rates more, but the incredible and erratic moves around the financial markets will prevent the idea about even discussing raising interest rates once again..

What is the key level in the USDJPY to have a bearish breakout? Can the yen continue to rise?

 

Regardless of how surreal the improved JPY demand will be for some onlookers, we remain firmly bullish on the Japanese currency and still believe that it has potential to gain even further in value. We were extremely bullish on the Japanese currency at the turn of the year, basically because we were aware that the markets had not accepted the fact that prolonged weakness in the oil markets was here to stay and that the fears around slowing global growth were sure to resume. This meant that the equity markets were at risk to falls and when the China concerns intensified once more, the gates were officially open to purchase the Japanese Yen. 

 

It is possible that the Yen might withdrawal some of its gains in the shorter-term if the markets return to a calmer mood, but if slowing global growth does remain as a hot-topic throughout the year and traders continue to show resentment towards the Dollar, the Japanese Yen is clearly still a safe-haven favourite in times of uncertainty.

US oil is trading at new lows around $27/barrel; do you see any potential buying zone as Feb is usually good for oil? Is it likely to see oil at $20 as Goldman Sachs affirmed some months ago?

 

While some will be looking at such a low oil price as a possible buying opportunity, purely due to the reality of their only being so much lower it can go after weakening by 80% from its peak less than two years ago, I would still stay away from the commodity to be honest. $25 is seen as the next major support level and if it breaks, the selling is going to extend even further. 

 

I also think that while some might be tempted into purchasing due to the price being so depressed, I would also point out that it depends on your own risk management strategy and how long you are willing to wait for a possible return on your investment. While there is an obvious acceptance that everyone knows that prices can’t remain this low forever, prolonged weakness in the oil markets could potentially be a theme for years to come. We personally believe that $35 is a huge psychological longer-term resistance level and if prices do not conclude above $35 at the end of the trading week as markets conclude, there is a severe risk there will be another aggressive round of selling like we were very explicit about less than two weeks ago. 

This basically means that until WTI concludes above $35, I still don’t see the possibility that oil can return to $40 let alone any higher.

Finally, one on the US election outlook: in a hypothetical Trump vs Sanders race, how do you think the market could be affected following their very opposite point of views?

 

I am going to be very honest, the thought of the Trump campaign getting any stronger gives me concerns and I think that the continuation of the Trump campaign picking up momentum is a risk that the markets should be monitoring as we enter Q2. Of course, there is the potential for political uncertainty in the markets whenever an election nears and we can regularly see this regardless of where an election takes place around the globe, but the reason why I am nervous about Trump is that his views are just too unspoken. 

 

I am anxious that his comments lack so much political tact and awareness towards sensitive situations that Donald Trump could potentially actually cause a severe headache to the Dollar if his political campaign looks like it could extend into the final stages.