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.
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.
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.
Have the chances of the Fed hiking rates in June increased in the last week?
The financial markets were charged with explosive levels of volatility during trading this week following the shockingly hawkish FOMC meeting minutes which rekindled expectations over the Federal Reserve raising US rates in June. What was even more surprising was that the minutes stated that most participants in the committee considered that if domestic data from the States was consistent with a recovery in economic growth, the prerequisites of a June hike could be fulfilled. Although data in the States has improved with the resurgence in retail sales and rise in inflation providing encouragement for the Dollar bulls to take center stage, concerns over April’s dismal NFP report continues to linger in the background. While the Fed could be commended on their ability to boost expectations of a June hike, the bitter fundamentals and ongoing anxieties over the state of the unstable economic landscape should sabotage any efforts taken by the central bank to act. Eventually, when this harsh reality hits investors, the Dollar could be poised to decline as optimism fades over any action taken by the central bank in Q2.
Do you see significant downside risks to the EURUSD on the coming weeks?
With expectations mounting over the Fed raising US rates in Q2, Dollar bulls have exploited the opportunity to strengthen the Dollar and this can be reflected in the vulnerable EURUSD that has sunk below the strong 1.1350 support. It seems that this pair has already breached the daily bullish channel and with the candlesticks firmly trading below the daily 20 SMA, prices have turned bearish on the daily timeframe. More downside risks could be presented towards the EURUSD if data from the States continues to beat expectations, which may simply fuel optimism over the central bank taking action this quarter. From a technical standpoint, prices have broken below the previous higher low around 1.1250 while the MACD also trades to the downside. Although this bearish momentum suggests that a steeper decline towards 1.100 could become a reality, a Fed disappointment may severely puncture US rate hike expectations consequently leaving the Dollar extremely vulnerable to losses. The result of a considerably weaker Dollar following another potential disappointment should propel the EURUSD back towards 1.1400.
Where do you foresee the USDCAD and Oil prices going in the medium-term?
The USDCAD has enjoyed an extended downtrend with prices declining over 2000 pips since the start of the year as a mixture of Dollar weakness and violent swings in the oil markets encouraged bearish investors to attack. With the Dollar strengthening amid growing rate hike expectations and the CAD weakening from tepid domestic data, this catalytic combination caused the USDCAD to surge above 1.2750 consequently breaking the daily downtrend. While the USDCAD remains fundamentally bearish this bounce could take prices towards the daily 61.8% Fibonacci retracement level at 1.3800 before prices continue to decline. From a technical standpoint, prices are trading above the daily 20 SMA and the MACD has also crossed to the upside. With the prerequisites of a technical uptrend achieved on the daily timeframe prices may be poised to venture towards 1.3800 in the medium term.
In regards to Oil prices, the sharp appreciation towards $50 was simply the product of expectations mounting that supply in the global markets could be declining. This concept is understandable as production disruptions from major oil export nations such as Nigeria, Canada and Venezuela have slightly dented overall global production. However, it must be understood that these disruptions are short term and with production rising in both Iran and Europe, WTI crude could be poised for further declines. In the medium term, the oversupply woes should cap how high prices can advance while the fading expectations that OPEC secures a production freeze deal should continue to haunt investor attraction towards oil. If the $55 region can defend then oil prices may have the ability to sink back towards $40 and potentially lower.
With inflation struggling to pick up everywhere and real interest rates being negative, is Gold poised to continue its uptrend?
For an extended period, Gold prices have been dictated by US rate hike expectations and with expectations rekindled that the Fed could take action this quarter, the precious metal tumbled below $1250. Regardless of these short term losses, Gold remains fundamentally bullish and could be poised to incline higher if the Fed fails to take any action in Q2. With inflation struggling globally and central banks implementing negative rates in a fighting bid to revive growth, risk aversion remains rife and this should boost this metal’s allure in the future. While the Fed could be commended on their ability to raising optimism over the possibility of another rate hike in June/July, data from the States and ongoing global developments could obstruct the efforts of the central bank. This dangerous game of promises could offer a foundation for bulls to install a heavy round of buying in Gold if market participants are left empty handed. From a technical standpoint, prices are trading below the daily 20 SMA but the MACD still trades to the upside. If the $1250 support defends, this could transform into a new higher low that may aid that could aid a rise back towards $1285.
