'EUR/USD move to parity will require another excellent US NFP report' - 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.

EUR/USD found support at 1.0460; but... Is it going to parity?

Traders showed complete caution with the Eurodollar during February while negotiations over the Greece bailout went all the way to the final wire. I was anticipating the selling pressure to resume in March and I haven’t been very surprised by how fast the Eurodollar has slipped down the charts. 

The complete divergence in both economic sentiment and monetary policy between the United States and Europe has become obvious to traders, and the tumble from 1.39 to 1.04 is likely to continue extending lower. The move to parity is appearing inevitable and I am not ruling out the possibility of this happening as soon as next month. However, the move to parity will be dependent on further elevated USD demand and would likely require another excellent US Non-Farm Payroll report next month to encourage optimism that the Fed could hike interest rates more than once this year. 

The US Dollar started the week with a weak note as it seems investors are awaiting for the FOMC. What is your touch on the next Fed's policy meeting? What will be the most affected pair?

The markets are too focused on the potential removal of the word “patience” from the FOMC statement and should be looking elsewhere for clues indicating when the first US interest rate increase is going to occur.  It has been reported for some time that the Federal Reserve will not be in a hurry to begin raising interest rates, and the statement this evening is likely to repeat that key message. Inflation expectations will be repeated as something which the Fed is closely monitoring, however I am intrigued to find out if the Central Bank is concerned regarding the weakness being seen in emerging market currencies. Overall though, the USD will remain completely supported as long as optimism remains high that the Fed will have to raise interest rates and when this occurs I will be watching the USDJPY. Reason being is that the JPY has shown complete resilience and failed to weaken despite the USD dominance on the currency markets.  

Do you think the USD/CAD will return to 1.3000?

To be honest, I was surprised at the speed of the CAD weakness during the final few months of last year because the Canadian economy is not as reliant on oil exports as some other economies. However, dovish comments from the Royal Bank of Canada (RBC) encouraged currency weakness and the surprising interest rate cut recently sent the USDCAD into overdrive. I am not expecting further interest rate cuts to come from the RBC, and therefore most CAD weakness is priced into the market. In regards to whether the USDCAD will return to 1.30, traders should keep an eye on if WTI oil continues to slip to new lows and when the Federal Reserve begins to raise US interest rates. The USD will continue to rally further as the Fed raises interest rates, and this will be the major catalyst behind the pair returning to 1.30.

What is, in your opinion, the GBP/USD fair price? Don't you think UK fundamentals are good enough to push cable higher?

This is interesting question, however before we consider the “fair price” for the GBPUSD, it’s important to consider why the pair has struggled this year. The reason for the pound weakness has basically been because there is a complete lack of attraction towards the currency. Traders were fully aware that the Bank of England’s (BoE) dovish views on inflation were going to become even stronger following the decline in the price of oil, which also basically completely erased UK interest rate optimism for this year. On top of that, traders also knew that the UK election was scheduled for May 2015 and following the completely unexpected volatility with the Scottish Referendum last September, there is therefore hesitance to enter the currency prior to this. The UK economy is also highly reliant on its close relationship with Europe, therefore the Euro weakness was also likely to drive the GBP lower at some point. 

There is no doubting that the UK fundamentals are consistently strong, however it is the factors above that have been the major reason behind the GBPUSD slide down the charts. As the UK election gets out of the way and the EURUSD finds a floor in selling, this is when the GBPUSD will be more attractive to traders.

What is the role that upcoming UK elections may play on the sterling value over the next months?

Sterling volatility is already at its highest level since the Scottish Referendum last September, and I think that the 400 pip decline in the GBPUSD over the past week is another example of traders pricing a move into the FX market early. When the Scottish Referendum occurred last September, the GBPUSD slipped from 1.66 to 1.60 in a matter of days and never really regained its momentum as the referendum concluded. Looking at the latest opinion poll, it does appear that the UK election is going to be extremely close and I am not ruling out the possibility of the GBPUSD falling to around 1.43 in the lead up to it.

The WTI Crude declined more than $10 over a week and fell to a six-year low. Are we nearing a bottom in oil price or will we see more bearish runs? How will the low oil price impact the markets?

I always thought that the bounce we saw in February was at risk of a serious pullback, basically because the economic conditions for the commodity had never changed, and as the oversupply concerns remain a constant headline. Following the price falling from $70 due to OPEC’s decision not to cut production in November, I predicted that the floor would be at $42. We are now testing this area but if we extend below, there is technically very little preventing an eventual move to $35. The bears definitely look re-energized and I think that they have seized the opportunity to push the price lower because the next OPEC meeting is scheduled for two months’ time. The bears are also looking at the comments made by the Federal Reserve Beige Book a fortnight ago which indicated that the Fed was slightly more concerned about the falling oil price than it was previously letting on. This means that the chances of a supply cut somewhere down the line are stronger than they were previously, and the bears are attempting to push prices lower before they begin to come back during the second half of the year. 

If prices begin declining below the $42 area, there is potential for this to cause serious shockwaves on the financial markets. I would look for the impact this will have on currencies that have already been impacted by the dramatic decline in the price of oil, such as the Russian Ruble, Norwegian Kroner, and Canadian Dollar, alongside global indices. The last time indices felt pressure due to the sudden decline in the price of oil, safe-haven attraction towards the JPY was seen and I am not ruling out this returning.