'GBPUSD still bearish, weekly close below 1.45 should open steeper decline to 1.41' - Lukman Otunuga, FXTM

LUKMAN OTUNUGA 
PROFILE
• Current Job: Research Analyst at ForexTime (FXTM)
• Career: Spent two years as a research analyst with international currency broker FXCM prior to joining FXTM. Holds a BSc degree in Economics from the University of Essex and an MSc in Finance from the London School of Business and Finance.

View profile at FXStreet

Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency markets.

Prior to joining FXTM, Lukman spent two years as a research analyst with international currency broker FXCM, where he focused on technical and fundamental analysis of the global currency, commodity and stock markets. Lukman was also responsible for leading educational seminars for international and local high net worth individuals and has published a series of educational articles on forex trading with City A.M.

USD weakness has been going on for a while now. Do you think the NFP release can provide some spark on the dollar?

 

The rapidly eroding expectations over the Federal Reserve raising US rates in 2016 have created a foundation for bearish investors to ruthlessly attack the Dollar, with the Dollar Index sinking to levels not seen since January 2015. Sentiment remains strikingly bearish towards the Dollar and with US data following a negative path, Dollar weakness may be the dominant theme that reverberates through the global currency markets. Although the Fed has refocused on domestic data as a means of raising US rates, it must be remembered that economic reports from the States continue to disappoint, while ongoing global instabilities have exposed the nation to downside risks. While a positive NFP may offer the Dollar bulls a temporarily lifeline, the fundamentals point to the downside and the relief rally created from an impressive report could provide an opportunity for bears to send the Dollar much lower. From a technical standpoint, the Dollar Index is bearish on the daily timeframe as there have been consistently lower lows and lower highs while the MACD trades to the downside. A positive NFP report could trigger a rise towards the previous 94.00 support that could transform into a dynamic resistance for a deeper decline back to 90.00.

Positive employment figures have been the main indicator working in favor a Fed rate hike, but global sentiment in the markets keeps delaying the decision. Do you think the Fed will pull the trigger with a rate hike in June?

 

 

The Federal Reserve may be on standby as the negatively morphed global landscape continues to sabotage all efforts by the central bank to raise US rates in Q2. Investors should remember that concern over slowing global growth has weighed heavily on sentiment, while the incessant declines in commodity prices continue to expose most nations to major downside risks. Once upon a time a positive employment figure was enough to boost expectations of further rate hikes, but with domestic growth following a tepid path in the States, other attributes must be put into consideration before moving forward. With concerns still lingering over the Fed’s decision to raise US rates in December, the central bank may be forced to think twice before prematurely pulling the trigger in market conditions that clearly signal instability. Although the Fed Funds futures display a 10% probability of a rate hike in June, this seems quite optimistic and it remains highly likely that the central bank is parked on standby for Q2.

How high can the EURUSD go if the Fed stays dovish?

 

 

If the Federal Reserve remains dovish then this may reduce expectations of future rate rises consequently weakening the Dollar, which could offer a foundation for bullish investors to send the EURUSD towards 1.170. In this scenario a vulnerable Dollar could be the engine that continues to keep the EURUSD buoyed while concerns over the ECB’s inability to revive Eurozone growth simply provides some additional encouragement to the Euro bulls. This explosive combination of EUR strength and USD weakness should create the correct environment for bulls to send prices to gravity defying levels. From a technical standpoint, the EURUSD is firmly bullish on the daily timeframe as there have been consistently higher highs and higher lows while the MACD trades to the upside. Previous resistance at 1.140 could transform into a dynamic support that may invite an incline towards 1.170. If bulls manage to conquer the historic 1.170 highs, then the parity dream has truly faded with the next major resistance based around 1.200.

Who is more important for the markets right now: Janet Yellen or Mario Draghi?

 

 

With US interest rate rise expectations becoming one of the main themes that resonate across the financial markets, focus could be directed towards Janet Yellen who is a major financial force to be reckoned with. Although Mario Draghi holds great importance, the recent market reactions towards the ECB’s aggressive stimulus measures have undoubtedly raised questions over the central banks president’s grip on the Eurozone crisis. Investors should also keep in mind that with the focus increasingly building towards the actions and statements from the Fed, a mishap by the central bank has the ability to not only punish the Dollar but rattle the financial markets. While expectations are high that the ECB may implement further stimulus measures in a bid to boosting growth in the Eurozone, the growing uncertainty whether the Fed may raise US rates has left the markets noticeably sensitive and this reinforces how important Yellen has become.

What about GBPUSD? Apparently, Brexit fears are diminishing, so… can the cable go on a run upwards?

 

 

The Sterling experienced a sharp decline during trading this week as a rising Brexit Campaign coupled with an unexpected contraction in the UK manufacturing PMI rekindled concerns over the state of the UK economy. Sentiment remains bearish towards the Sterling and mounting uncertainties over the impact of a Brexit have periodically haunted investor attraction towards the pound even further. With economic data in the UK following a tepid path, the Bank of England has little incentive to raise UK rates and this could encourage bearish investors to attack prices lower. The Brexit fears have not diminished at all and with the referendum drawing closer with each passing day, any bullish runs from the cable could be heavily capped. Although the GBPUSD lurched to the highs of 1.477 this trading week before a hefty decline back below 1.4500, this may have created a platform for another deeper decline. This pair remains bearish and a solid weekly close below 1.4500 should invite a steeper decline back towards 1.4100.

Do you think Kuroda will be able to avoid triggering more easing measures if the JPY keeps gaining strength?

 

 

Market participants were left shocked during trading last week following the Bank of Japan’s unanticipated decision to leaving monetary policy measures unchanged despite the Japanese economy in dire need of central bank intervention. This shock and disappointment from the BoJ’s inaction triggered a sharp appreciation in the Yen that caused the USDJPY to plummet to 18-month lows below 106.00. An appreciating Yen has left Japan under immense pressure with diminishing export competitiveness rekindling deflationary pressures while sliding commodity prices continue to leave the nation open to downside risks. Although expectations have faded over further intervention by the BoJ, Kuroda may be forced to apply more easing measure as concerns heighten that the economy could descend into another technical recession. Investors should remember that the BoJ is notorious in creating surprises and extreme measures could be taken by the central bank if the Yen continues to strengthen, despite the currency warnings from the United States.