'I expect further decline of the EUR/USD and no change of the trend at least till the end of the year' - Adam Narczewski, XTB Poland

 Adam
Narczewski

PROFILE:
• Current Job: Deputy Regional Director at XTB Poland
• Career: Market analyst at XTB Poland. Frequent guest of TV shows on TVN CNBC, CNBC Europe & World, Polsat News.

View profile at FXStreet

Adam Narczewski is currently the Deputy Regional Director and a market analyst at XTB Poland. He has explored the secrets of finance at Winthrop University in South Carolina (USA) where he acquired invaluable experience. He specializes in international markets, fundamental analysis and practical application of options and in investing. Trades forex on international markets and stocks on the Warsaw Stock Exchange. Adam is a candidate to the CFA designation, also a speaker on seminars regarding structured instruments, financial engineering and advanced financial instruments. Adam is a frequent guest of television programs in Poland - TV Biznes, TVN CNBC, CNBC Europe & World, Polsat News and radio show.

EUR/USD bounced off to 1.2500 on Monday, but most experts are stating that the setback will be short lived. Do you see the EUR/USD to fall further? Targets?

The downward trend on the EUR/USD is very strong and trading against it at this moment is our of questions. There are no signs or impulses that could justify buying the Euro. The tough economic situation in the Eurozone, along with the ECB's easing measures can have only negative impact on the common currency in the short term. So yes, I expect further decline of the EUR/USD and no change of the trend at least till the end of the year. Upward rebounds will take place but I expect the main currency pair to reach 1.23 in the next couple of weeks and possibly reaching its lows from July of 2012 at 1.2050.

If/when the ECB's widening of the scope of assets purchased in its bid to expand its balance sheet to EUR1 trillion fails to filter down to lower real lending rates, or indeed if those lower rates don't create increased business activity - where is next for the ECB?

It is still far away from the ECB going full throttle with the asset buyback. The ECB basically has not bought back any risky assets. The bank still has the possibility to announce it will buy back corporate bonds and ultimately, government debt. I believe this expansion of the buyback program would the first action the ECB would take if the currently being introduce measures do not perform as expected. But still, before thinking about the next step, we have to see the effects of the easing program that is being introduced.

Can the Eurozone stop being a dumping ground for Japanese and US deflation without the ECB trashing its currency?

Rather not. The ECB actions have a clearly negative effect on market interest rates, which is causing the common currency to depreciate. Taking into account the bank's determination and the low inflation in the Eurozone, it is hard to believe anything can change this trend.

Apparently, the USD/JPY found a floor at 114.00 as the pair is currently recovering above 114.50. Do you see the pair consolidating gains above 115.00?

Certainly. The USD/JPY for some time already has been expected to increase. After breaking the 105.00 resistance the upward move accelerated. Much more fuel was added to the fire by the Bank of Japan and the USD/JPY shoot through the roof. Will the weaker Yen help the Japanese economy (mainly exporters) that is a different questions and a long story that answers it. From the purely trading perspective, we have to understand that changes the Yen will regain ground are very low. Sure, as with the EUR/USD, the USD/JPY will experience corrective movements but I believe it will not only consolidate above 115.00 - it will continue a steady increase, possibly even to 120.00 (the first target for me is 118.)

Will the Bank of Russia stick to its guns on its cancelling of the permissible range of the dual-currency basket ruble values or will its financial stability mandate for intervention simply mean the same outcome via a different policy?

Since the situation is very volatile, it is hard to forecast what actions the Bank of Russia (BoR) will undertake. Taking into account that further sanctions will be introduced by Western countries (the U.S is getting ready for this), the Ruble should be under pressure again. In this case the BoR will try to somehow amortize the outflow of capital and the simplest and quickest way seems by increasing even more interest rates.

Gold rebounded at 1,131 last week to close positive after two consecutive weeks in the negative side; however, the XAU/USD opened lower on Monday. Do you see gold making new lows?

I believe that is a sensible scenario. I do not see the prices of gold rebounding with the strengthening U.S dollar against the Euro and the Japanese Yen. Increasing market interest rates also have a negative effect on the prices of gold. In this situation I do not see gold rebounding (although corrective movements will happen) and new lows this year are very possible - prices of gold can fall to levels unseen since 2009: 1,040 - 1,050 USD per ounce.