'Trader's appetite for USD to resume, Dollar Index to approach 100 again' - 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.

After a strong employment report, talk about a September rate hike from the Fed has come back. This is in line with your predictions. Do you think EUR/USD will have a bearish run this summer prior to the Fed Meeting in September?

I remain bearish on the EURUSD and personally think that the pair trading at 1.13 is an opportunity for sellers. With the situation in Greece continuing to drag on and Greece itself being seen as a reoccurring risk to investor sentiment, traders have enjoyed the opportunity to enter selling positions each time the EURUSD has reached this high over the past month. 

There is still a complete contrast in central bank policy between the Federal Reserve and European Central Bank, which is only going to widen even further when the Federal Reserve finally pull the trigger on raising interest rates with this being why I am still bearish on the Eurodollar. 

In regards to the US interest rate rise, I expressed since autumn 2014 that it would happen in September 2015 and I fully expect this to be the case. There is no reason for the Federal Reserve to wait any longer and if they did, they would risk some really aggressive dollar profit-taking. The Federal Reserve raising rates at a time when other global growth forecasts are being downgraded would provide confidence in the global economy with a much-needed boost.

After the bunch of money injected in markets by the Fed, and other central banks, in the last years; any single point increased in Fed rates will have more than a simple impact like previous experiences. What will be the impact of a Fed's hike to 0.5% in the USDJPY and EURUSD?

I personally only anticipate the Federal Reserve raising interest rates by around 20 basis points to begin with, and I think a 50 basis point move would really surprise the markets. 

I don’t think a 50 basis point move has been priced into the dollar and if the Fed were to hike by 0.5%, we are very likely to encounter a strong rally towards the dollar. This would be bullish for the USDJPY and bearish for the EURUSD.

Do you think the USD will strengthen its value during the second half of this year?

I do think that the dollar is going to strengthen as we enter the 3rd quarter of the year, mainly because this is the quarter where the Federal Reserve should really begin raising US interest rates. 

I always expected there to be a dollar pullback in Q2 with this being because traders completely overhyping the possibility of an interest rate rise in the first half of 2015. This was never going to be the case and once traders finally began to realise it, they started to take profit which has also been why the dollar has lacked the direction over the past two months. 

Now that we are approaching the months of a US interest rate rise, traders’ appetite towards the USD is going to resume and I expect the dollar index to approach 100 once again.

The gold lost around $70 in less than a month from 1,230 lows of 1,161. Swings are turning more violent, What's your touch in the yellow metal?

While there has been reports over physical demand for gold increasing, the metal itself has traded strictly in accordance to US economic news for a year now. 

In regards to its swings being more violent over the previous month, this is because the dollar itself has struggled to find direction. The longer-term expectations towards gold are still bearish due to the US interest rate outlook, however traders are exploiting short-term buying opportunities when US economic data pushes back interest rate expectations.  .

What's going on in the government debt market? Pressures are increasing over the market and the volatility is at a high; is this something we should worry about?

The rising volatility in government bonds is one of the factors behind the currency market volatility, and it is interesting to hear that several central bank policymakers have touched on this as of late. ECB President Mario Draghi expressed that this volatility will continue just last week. 

I wouldn’t say government debt should be highlighted as a concern for investors, mainly because government debt is still in the same positon as it has been for a long time. The only markets where I envisage government debt being more widely spoken about is in the emerging markets, because their currencies are taken complete punishment as we approach the timing of a US interest rate rise.

US stocks are completing several days trading lower in a row; after falling from highs, do you see this move as more than the so called sell in May and go away motto?

This is an interesting question because the ECB’s Coeure recent stated the central bank would speed up QE through the summer months because markets generally lose inflows during the same time, so it is possible the US markets are losing steam for a seasonal reason. 

However, I personally think that the recent drop away from the highs is because investors have realised that there is still far more room for improvement in the US economy to compliment what investors were pricing into US stocks. 

It is also worth pointing out that the global growth forecasts have recently been downgraded, alongside further weak data from China and the ongoing Greece situation. Personally I would say that the pullbacks in the US markets are more correlated to these factors than anything else.