'EUR/USD parity should not be hit until late into the year' - Przemysław Kwiecień, XTB Poland

 Przemysław
  Kwiecień

PROFILE:
• Current Job:  Financial analyst at XTB Poland
• Career: Advisor to the Minister of Finance in Poland. Market economist at Millennium S.A, Poland.

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Przemysław Kwiecień is an advisor to the Minister of Finance of Poland. He has done research and forecasts on the economy and the fiscal policy, and cooperation and advising at the preparation of MF’s official documents (budget assumptions, convergence programme, debt strategy, euro adoption strategy). He excels in market research and advising to debt officers. He has also done research and forecasts on the Polish economy, the US and the eurozone economies.

It seems there is nothing that can stop the USD strength. Do you see the EUR/USD at parity? Which is your line in the sand? How will the Fed meeting next week affect the EUR/USD?

The parity is very well possible, depending on what the FOMC is going to do next week. If they remove the “patient” guidance and hint at the first hike in June there will be fresh fuel for USD appreciation. Looking at interest rates the pair is somewhat oversold and even with a hike in June the parity should not be hit until late into the year but you never know if the market isn’t going to overreact.

We see the FOMC removing the “patient” guidance and remain bullish on the dollar (we have been bullish since the spring of the last year) however, we are aware that the market is stretched.

What is more, should the EURUSD stay at the current level (let alone decline further) and should oil rebound only moderately there is a very good chance the ECB will move the ’17 HICP projection above 2%, that is above the target which could spark some taper worries. We are still nearly 3 months away from this but it’s worth to keep this in mind.

The GBP has been struggling as of late more than we think has been justified. The latest projection revealed an increased optimism among the MPC and pretty much put the interest rate hike this year back on the table. Actually in our view 2 hikes are more likely than no hike and thus expect the money market to defend the pound against an excessive weakness.

I wouldn’t say so. Demand price elasticity for oil is very low and right now the supply side is all the oil market is about. Rig count data shows a quite rapid adjustment in the US&Canada but there is a deal with Iran in the pipeline and should it be reached oil may actually make new lows before rebounding for good.

We see gold at 1100$/ounce with a downward risk. As the USD appreciates the gold becomes more expensive and in some countries, like India, it is important. What is more, with the US rates on the rise an alternative cost of storing gold increases so the case for a bull market on gold, in our view, does not exist.