'EURUSD to become a bull-bear battleground in Q4' - 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.

EUR/USD has slowed down its powerful surge around 1.20. Which forces will be driving the pair in the last quarter of the year? Are you bullish or bearish?

The mighty Euro lost ground against the Dollar this month after buyers repeatedly failed to secure control above 1.20.

With the Greenback bouncing back to life and political uncertainty in Europe currently pressuring the Euro, forces driving the pair are about to experience a significant change. While optimism over the ECB tapering QE is likely to support the Euro, a resurgent Dollar amid rising rate hike expectations may end up limiting any significant upside.

There is a possibility that the EURUSD will transform into a battleground for bulls and bears in the last quarter of the year, as investors juggle with ECB taper speculations and mounting Fed rate hike expectations. Taking a look at the technical picture, prices are starting to look increasingly bearish on the daily and weekly charts. Sustained weakness below 1.1680 should signal an end to the weekly bullish trend, with the next level of interest at 1.1500.

The Fed confirmed that it will begin trimming its balance sheet in October and upgraded its interest rate hike projections, but initially failed to pump the USD. What do the greenback bulls need to come back in charge?

Greenback bulls were initially lacking conviction but eventually received inspiration after recent hawkish remarks from Yellen reinforced expectations for another US rate hike in 2017.

Market players who were anticipating higher US interest rates this year, warmly received comments from Yellen, stating that it would be “imprudent” to keep monetary policy on hold until inflation is back to 2%. With Dollar bulls back in town, further upside is on the cards, especially if positive economic data from the U.S compliments the Fed’s hawkish rhetoric. Investors should also direct their attention towards US President Donald Trump’s proposed tax reforms. If legislation is passed this year, this should elevate sentiment towards the US economy and boost the Dollar further.

From a technical standpoint, the Dollar Index is trading higher on the daily charts with bulls making easy work of the 93.00 resistance. A breakout above 93.50 should encourage a further incline towards 94.00 and 95.00 respectively.

What's behind the back-and-forth statements by the BoE members? Are Carney & co bluffing on policy tightening?

The Bank of England policymakers may be commended on their ability to breathe life back into Sterling by stimulating expectations of higher UK interest rates. But this could end tragically for Sterling if this year concludes without a tightened monetary policy.

While there is a strong argument for higher rates taming inflation, this may end up impacting business confidence and punishing the fragile UK economy. Even if the BoE attempts to look beyond this, Brexit and the swirl of uncertainty it presents is another obstacle that may end up sabotaging the central bank's efforts to act. Sterling has already displayed signs of weakness as the 4th round of Brexit talks gets underway - with further downside expected if economic data disappoints.

Sterling/Dollar remains under pressure on the daily charts below 1.3500. Sustained weakness under this level should open a path lower towards 1.3350.

One of the FX best performers in the last months has been the Canadian Dollar, with BoC hiking rates by surprise last month. Besides Oil price pickup, which are the reasons behind that move? Do you expect the Loonie to continue to outperform?

An unexpected rate hike by the BoC, coupled with resurgent oil prices has made the Canadian Dollar a champion amongst its peers. With sentiment towards the Canadian economy bullish, as domestic economic data exceeds market expectations, the Loonie is likely to remain supported.

Taking a look at the technical picture, the USDCAD fulfils the prerequisites of a bearish trend as there have been consistently lower lows and lower highs. A technical bounce is in process with prices currently trading towards the 1.2500 resistance level. If this resistance defends, then sellers may be inspired to drag prices back towards 1.2200. In alternative scenario a solid daily close above 1.2630 should tempt buyers to target 1.2780.

With the Canadian Dollar fundamentally bullish and U.S Dollar supported by rate hike expectations, we could see a tough tug of war on the USDCAD. 

By the way, how bullish is the Oil market? With OPEC seemingly settled-in, can it continue to rise targeting above 60$ levels?

The rising confidence over OPEC’s ability to rebalance markets long-term, has heavily supported oil prices.

While further upside may be witnessed in the short term amid the growing optimism, rising production from Libya and Nigeria is likely to pose issues down the line. In the recent meeting, Iran was already pressing for OPEC to enforce limits to oil production in both countries. Although OPEC’s efforts in tackling the current global glut are admirable, it still faces the same problems it has had since oil started to depreciate in 2014. Namely, U.S Shale. Rising oil prices as a result of OPEC’s supply cut, are likely to support growth in rival supply, which brings us back to square one.

Although Brent Crude is bullish and has a shot at the $60 level, questions should be raised over how sustainable the current rally really is. WTI Crude is also bullish on the daily charts, with a breakout above $52 opening a path higher towards $54.

Is the Bitcoin market in a bubble? Or does it have more ground to cover on the upside?

Bitcoins and cryptocurrency have seen their value rise drastically as geopolitics and uncertainty led to unconventional assets being in demand. With Bitcoins peaking above $5000 this month, the markets appear to be dominated by bulls. While China’s latest crackdown on Bitcoin has punished the cryptocurrency, prices have somewhat stabilized.

With prices rallying over 400% since the start of 2017, it will be interesting to see if the Bitcoin market is a bubble waiting to burst or if bulls can conquer the $5000 level. Crypto currencies have not been around long enough for experts to accurately predict their long term futures, but the increasing adoption of cryptos by governments suggests that they are here for the long haul.