Resource id #11Resource id #11 Expert Interview
20 August, 2017 15:22 IST
Expert

Rupee falling victim to a very weak sentiment towards EMs: Jameel Ahmad

Source: IRIS (13 January 2016)

Rupee falling victim to a very weak sentiment towards EMs: Jameel Ahmad
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The Indian Rupee will continue its decline against the USD with the currency potentially approaching 70 against the Dollar this year, said Jameel Ahmad, chief market analyst, ForexTime.com. ''The Indian Rupee is falling victim to a very weak investor sentiment towards the emerging markets, which is a global trend and doesn't look like it is going to reverse in momentum anytime soon,'' he opined.

In an interview with Sourabh Pandhare, Jameel Ahmad said, ''Regardless of how experienced you are as a trader, education never stops. The market sentiment is constantly changing, meaning that retail investors should continue to regularly read market analysis reports because it is generally the correlation of the news that is not priced into the currency markets, and this is where traders can find opportunities.''

1. Recently, the US Fed raised interest rates by 25 basis points for the first time in nearly a decade. It is expected that the Fed will go for three or four rounds of interest rate hikes in 2016. Based on that perspective, how do you see outlook on the global currency markets in 2016?

While it is true that several Federal Reserve spokespeople are publically announcing an intention towards raising interest rates around 4 times in 2016, most market participants with myself included are surprised by this, considering how hesitant and resistant the US central bank was towards finally raising rates at the end of last year. This therefore seems like an ambitious statement of intent at present, especially when taking into account that US economic momentum is slowing down and the only star performer of the economy is job creation.

Due to the acceptance that the US economy is miles ahead of other major developed economies when it comes to central bank policy and general economic sentiment, the USD will still remain supported for at least the first half of 2016. The only risk to USD traders at present is that the Fed will postpone raising rates any further, but given the confidence being shown by the Fed in public at the moment this is not a risk to be concerned about at present.

2. The Indian rupee has depreciated by 5% against US dollar in 2015. Do you think, the rupee will consolidate at current levels or cross level of 70 against dollar in the next year?

There is anxiety that the Indian Rupee will continue its decline against the USD with the currency potentially approaching 70 against the Dollar this year. The Indian Rupee is falling victim to a very weak investor sentiment towards the emerging markets, which is a global trend and doesn't look like it is going to reverse in momentum anytime soon.

The China economy is going to resume its decline in 2016, which is a major risk for all the emerging markets. This is also a risk for the Rupee and despite optimism that the central bank of India behaved proactively by cutting interest rates so many times last year in an effort to improve the domestic economy, traders are likely to continue ignoring the robust Indian economic data and the emerging markets in general will remain at risk.

3. The dollar index moved up 9% in 2015 to over 98 levels. Do you think the dollar index will continue to gain in 2016?

I personally believe that the 100 level on the Dollar Index is a psychological ''top'' and the index will need to close trading above 102 for the potential for further gains. With the USD being seen as supported against its other major currency partners due to contrasting central bank policy intentions, a resumption in repeated threats from other central banks that they will consider to ease monetary policy further is needed for the index to continue to rally higher.

In general, investors need to watch out for other central banks, like the ECB, threatening further stimulus because investors need to see further evidence of the global economic sentiment divergence widening before becoming further attracted to the USD index.

4. How do you see outlook on USD-EUR, USD-GBP, USD-YEN and USD-CNY for 2016?

Despite the Yuan being introduced to the Special Drawing Rights (SDR) basket at the end of the last year, the trend for the Chinese currency will remain weak. The China economy is going to continue slowing down and the PBoC will gradually allow the Chinese currency to weaken also.

Because of the sentiment being weak towards both China and the impact this could have on not only the emerging markets, but also equity markets in general, I am very positive on the Japanese Yen currency. Equity markets have still not digested such a prolonged period of depressed commodity prices and the impact this will have on further global economic downgrades, meaning that the USDJPY is vulnerable to declines.

The GBPUSD is going to be the most well-known major currency pair to attract declines this year with investor attraction towards the GBP very low. Risks to investor sentiment include continued inflation weakness, a recent downturn in economic data and interest rate expectations being regularly pushed back further. Additionally, there are concerns that a vote might be confirmed to discuss the UK membership into the EU and although a ''Brexit'' outcome is very low this will weigh on investor sentiment.

Expectations remain for the Euro to hit parity against the USD, although I personally think that the global equity markets are going to face further falls with this meaning that the EURUSD will bounce higher on unwinding positions from traders. Economic data is also gently improving in Europe, which is another reason to believe that the long-talked move about ''EURUSD parity'' might not actually occur.

5. According to you, what precaution should retail investors take before and after entering the currency markets?

Regardless of how experienced you are as a trader, education never stops. The market sentiment is constantly changing, meaning that retail investors should continue to regularly read market analysis reports because it is generally the correlation of the news that is not priced into the currency markets, and this is where traders can find opportunities.

For example, last week's news regarding Chinese trading being suspended led to declines in the currencies of China's trading partners such as the Australian Dollar. There is also a correlation between China economic news and the impact this has on the commodity markets as China is a heavy commodity importer, which meant that there were opportunities to price in further weakness into the currencies of commodity-export economies.

Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

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