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Forex

Forex Weekly Outlook July 4 – 8

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Outlook

Post-Brexit has not only changed the way investors and businesses approach the markets, but also have up the level of uncertainty and wariness of financial market participants. Last week, the US final GDP showed that the economy rose at a 1.1 percent annualized rate in the first quarter, better than 0.8 percent previously estimated. While both consumer confidence index and manufacturing sector showed reasonable improvement, yet the dollar lost substantial ground against its counterparts, partly due to the Federal Reserve’s decision to delay rate hike, and perhaps that explained the level of uncertainty of the financial markets post-Brexit.

Another important factor to consider going forward is the global political system — the US presidential election, the Japanese election, the UK election and the on-going Australia election are key determinants of market direction as investors and businesses are expected to make adjustments to their investments and business decisions to accommodate possible changes in policies peradventure incoming administration deem it fit.

This week, traders are also expected to start pricing in the possibility of Bank of England cutting interest rates further, after the governor of the Bank of England Mark Carney said on Friday that “it is now clear that uncertainty could remain high for a while — the economic outlook has weakened and necessitate some monetary easing over the summer.” Hence, caution is advised. This week the EURUSD, AUDJPY and USDJPY top the list. Lets start;

EURUSD

There is no doubt that the US economy has rebounded from 38,000 non-farm payrolls recorded in May, what is uncertain is to what extent. For instance, the manufacturing sector improved significantly to its highest in a year, while unemployment claims surged 1k last week. But the Euro 19-nation single currency on the other hand is entangled in post-Brexit gloomy outlook with uncertainty hanging over its head, although the US dollar lost part of its gains last week I believed its largely due to a delay in the rate decision and that the Euro currency is presently not attractive enough to topple the US dollar gains just yet.

Outlook

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If the pair failed to remain below 1.2304 resistance level, a sustained break will nullify this analysis as it would have confirmed an important bullish pattern. Otherwise, I am bearish on the EURUSD and expect a break of 1.1090 to open up 1.0714 target. Non-farm payroll report is due on Friday.

AUDJPY

The Aussie dollar attracted substantial buyers last week to gain back part of its losses against the Japanese yen. While the outlook seems okay without factoring in China’s weak manufacturing report released on Friday and chaotic electoral process that left the country without a conclusive election result last week, the pair remains bearish as long as 78.14 resistance level holds. Especially knowing the potential of the Japanese yen as a safe haven asset in an eventful period like this, I remain bearish on AUDJPY with 73.544 as the target.

Outlook

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Again Japan’s manufacturing sector, consumer confidence and trade balance improved well enough to reinforce the sort of demand needed to weigh on the pair, since weak China’s manufacturing sector will reflect on Aussie dollar this July anyways.  It is widely expected that the Reserve Bank of Australia will leave its rate unchanged on Tuesday.

USDJPY

As long as global risks remain high, global investors will continue to sell-off this pair to contain risk exposure. Even with 2 percent inflation target gradually becoming elusive, Japanese yen remains attractive.

USDJPYDaily

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This pair remains on the downside as long as 104.25 resistance level holds.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Naira

Nigeria Hits Historic High as Currency in Circulation Surges to N3.69 Trillion

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naira

Nigeria’s currency in circulation surged to a historic high of N3.69 trillion, according to data released by the Central Bank of Nigeria (CBN).

This figure represents an increase of N43.07 billion or 1.18 percent from the total of N3.65 trillion reported in January 2024 and a 13.64 percent year-on-year rise from N3.25 trillion reported in February 2023.

Currency in circulation encompasses the physical cash, including paper notes and coins, actively used in transactions between consumers and businesses within the country.

The latest statistics indicate a considerable uptick in the availability of cash within the Nigerian economy.

The surge in currency supply comes amidst lingering concerns over a potential cash crunch following the monetary policy adjustments by the CBN, particularly the aggressive tightening stance of the Monetary Policy Committee (MPC).

Analysts attribute this spike to various factors, including the fear factor stemming from the cash crunch experienced in 2023 and lingering uncertainties surrounding the administration of physical currency.

Despite the surge in currency in circulation, Nigeria’s economic growth remains sluggish, with projections indicating growth rates of around 2.9 percent to 3.1 percent for 2024.

Also, inflation remains a significant concern, with the headline inflation rate climbing to 31.70 percent in February 2024 from 29.9 percent reported in January 2024, according to data from the National Bureau of Statistics (NBS).

The CBN’s proactive approach to monetary policy, including a historic increase in the monetary policy rate (MPR) to 24.75 percent, underscores the central bank’s commitment to addressing economic challenges and fostering stability amidst persistent pressures.

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Naira

Nigerian Naira Surges to N1,350 per Dollar in Parallel Market

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New Naira notes

The Nigerian Naira has appreciated to N1,350 per dollar in the parallel market, a significant gain from its previous rate of N1,430 per dollar just a day earlier.

Similarly, in the Nigerian Foreign Exchange Market (NAFEM), the naira strengthened to N1,382.95 per dollar, indicating an upward trend across key forex segments.

Data from FMDQ revealed that the indicative exchange rate for NAFEM fell to N1,382.95 per dollar from N1,408.04 per dollar on the previous day, representing a gain of N25.09 for the naira.

This surge in the naira’s value has widened the margin between the parallel market rate and NAFEM to N32.95 per dollar from N21.96 per dollar previously.

Analysts attribute this impressive surge to recent foreign exchange reforms implemented by the Central Bank of Nigeria (CBN).

These reforms, including the consolidation of exchange rate windows and liberalization of the FX market, have contributed to bolstering the naira’s strength against the dollar.

The CBN’s proactive measures aim to promote stability, transparency, and liquidity in the foreign exchange market, fostering confidence among investors and strengthening the national currency.

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Forex

CBN Governor Reveals $2.4 Billion Forex Forwards Under Investigation

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Naira Exchange Rates - Investors King

Governor Yemi Cardoso of the Central Bank of Nigeria (CBN) disclosed that law enforcement agencies are currently investigating foreign exchange forwards valued at $2.4 billion.

This announcement came in the wake of the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday, March 26.

Governor Cardoso shed light on the meticulous forensic audit conducted on these transactions, which uncovered numerous discrepancies, rendering them ineligible for payment.

The CBN, while settling certain tranches of FX backlog, encountered transactions riddled with issues concerning their authenticity.

To address these concerns, Deloitte management consultants were enlisted to conduct a comprehensive forensic analysis spanning several months.

The audit revealed a multitude of irregularities, including allocations disbursed without corresponding requests, lack of proper documentation, and instances of outright illegality.

Cardoso emphasized the gravity of the situation, stating, “We refused to validate them because, apart from the fact that documentation was not satisfactory in many cases, they were outright illegal.”

He underscored the commitment of law enforcement agencies to investigate these transactions thoroughly.

Despite concerns about potential backlogs among stakeholders, Cardoso assured that the market remains open and transparent for addressing any outstanding contractual obligations.

The CBN has diligently verified and settled recognized backlogs of forward transactions.

This revelation comes at a critical juncture as Nigeria grapples with economic challenges, including inflationary pressures.

The MPC’s decision to raise the benchmark interest rate to 24.75 percent reflects efforts to stabilize prices and restore the purchasing power of the average Nigerian.

As investigations unfold and regulatory scrutiny intensifies, the CBN’s commitment to transparency and financial integrity will be closely monitored by stakeholders across the nation.

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