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Forex Weekly Outlook August 22 – 26

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Swiss Coins And Banknotes As The Swiss Franc Weakens Against Dollar

Global financial markets reacted to comments from US senior Fed officials last week, after a report shows a healthy manufacturing sector with 0.7 percent increase in industrial production and 0.5 percent surge in manufacturing output with a capacity utilization rate of 75.9 percent — the highest since December 2014.

Although, consumer prices came out flat at 0.0 percent as expected, building permits remained moderate with a resilient labor market (unemployment claims of 262,000). This week, investors are looking to an annual meeting of central bankers from around the world in Jackson Hole, Wyoming, at which Fed Chair Janet Yellen is scheduled to speak, for clues on the course of monetary policy. A hawkish outlook will strengthen the dollar as investors are expected to price in the likelihood that the Federal Reserve will raise interest rates in the second half of the year.

In the UK, the first full post-Brexit data shows retail sales jumped to 1.4 percent in July, indicating that low interest rates (0.25%), unemployment rate (4.9%) and inflation rate (0.6%) are supporting consumer spending against the widely predicted post-Brexit doom. Also, it is imperative to note that the drop in the pound exchange rate encouraged tourists to spend more, so it might be too early to decipher the improvement from the usual summer volatility – especially with a better weather like this year. The pound rose 0.9 percent against the US dollar to $1.3183 after the data was released, but quickly retreated following a surge in the odds of the Fed raising rates this year.

In Canada, retail sales plunged 0.1 percent in June to $44.1 billion, but few experts believed spending will rebound in the third quarter – mainly because of the child benefit for lower income and middle income partners due in July. Again, annual inflation rate fell below the Bank of Canada’s 2 percent target to 1.3 percent and short of 1.5 percent expected in July, as lower energy prices weighed on consumer prices and the struggling manufacturing sector. Overall, the Canadian economy is experiencing a lackluster growth, but the recent comments from Saudi Arabia’s Energy Minister Kahlid al-Falih has helped the commodity dependent economy/currency modulate part of its losses.

New Zealand continued to differ speculations even after inflation report disappointed. The economy added more jobs in the second quarter and reduced unemployment from 5.2 percent to 5.1 percent. Even though, the currency is yet to cap its gains so far, the strong US data released last week and the possibility of the Federal Reserve raising rates later in the year, may finally pave the way for the RBZN monetary expansion as explained last week and reinforce sellers’ interest, but a break of 0.6989 support will be needed to validate this bearish stance. Generally, New Zealand economy is solid, and one of the few with room for additional expansion if the need arises.

Australia added 26,200 jobs and reduced its unemployment rate by 0.1 percent to 5.7 percent in July. While the economy is far from its 2 percent inflation target, construction, tourism and education industries have helped keep its unemployment rate at a record low. This week, AUDUSD and EURAUD top my list.

AUDUSD

For a while the Australian dollar has been overpriced, but yet continued to gain against the US dollar and its peers. Last week, sellers jumped on the pair immediately Fed officials signals possibility of the Federal Reserve raising rates later in the year, and break the ascending channel started on May 30. This week, if the markets continue to price in that possibility, the strong dollar will likely weigh on the pair and may finally give us 0.7505 as explained last week. I believe a technical break below the ascending channel should be enough to force traders to start pricing in the 25 basis points cut. This week, I am bearish on this pair as long as 0.7673 resistance holds.

AUDUSDDaily

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EURAUD

This pair has gained 487 pips since Aug 11th, and positioned for even more. Here is why I think this pair may offer buyers opportunity, the Euro-area has shown resilience since the U.K exit the European Union, and has complemented its moderate fundamental with strategic monetary policy. Another reason is the U.K post-Brexit retail sales report released last week, would likely reduce the heavy negativity surrounding the Brexit and boost the business activities of the Euro-area.

EURAUDDaily

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Technically, after breaking 1.4665 resistance on Wednesday, the Thursday’s candlestick that closed as a bullish pin bar on the daily time frame was the first sign of bullish continuation. While the morning start pattern formed on weekly time frame validate this stance. This week, as long as 1.4665 support holds, I am bullish on this pair with 1.5008 as the target. Euro-area manufacturing PMI is due on Tuesday.

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

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Dollar

U.S. Dollar Pulls Back on Thursday After Hitting a 20-Year High

The United States Dollar pulled back slightly on Thursday after hitting a 20-year high on the back of rising interest rates and global demand for haven currencies.

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U.S dollar - Investors King

The United States Dollar pulled back slightly on Thursday after hitting a 20-year high on the back of rising interest rates and global demand for haven currencies.

The dollar index rose to 107.05 in the previous session, the highest in 20 years before pulling back to 106.57 at 11:07 am Nigerian time.

Against the Euro common currency, the U.S. Dollar gave back some of its gains on Thursday to trade at 1.0213, up from 1.0173 attained after dropping below 1.0350 support levels.

Similarly, the greenback pared gains against the British Pound to 1.2009 despite over 40 British lawmakers resigning their positions and calling for the resignation of Prime Minister Boris Johnson enmeshed in a series of scandals.

The value of the United States Dollar rose in recent weeks after it became clear that the Federal Reserve won’t be halting its rate increase anytime soon. The surge in demand for the United States Dollar was to avoid paying excessive borrowing costs going forward and also to ensure cash availability going into recession, known cash is king.

The Federal Reserve is expected to raise borrowing costs by another 50 basis points to 75 basis points in the month of July as it continues to battle 40 years high inflation rate of 8.6%.

This persistent increase in borrowing costs is expected to weigh on new job creation, new investment, earnings, and subsequently, drag on consumer spending that over the years has sustained the world’s largest economy.

Overseas orders will start waning American goods become more expensive to holders of foreign currencies. This, Investors King predicted would hurt manufacturing activity.

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Pound

British Pound Extends Decline as 44 British Lawmakers Resigns

British Pound sustained its decline against the United States Dollar and other global counterparts on Wednesday after five additional British lawmakers resigned their positions in protest against a series of scandals rocking the House of Commons in recent weeks.

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British pound

British Pound sustained its decline against the United States Dollar and other global counterparts on Wednesday after five additional British lawmakers resigned their positions in protest against a series of scandals rocking the House of Commons in recent weeks.

A total of 44 British lawmakers have resigned under Prime Minister Boris Johnson’s leadership, accusing the Prime Minister of engaging in or condoning actions that put parliament moral in question.

Against the American Dollar, Great Britain Pounds (GBP) dropped from 1.2164 it peaked on Monday to 1.1934 in the early hours of Thursday.

While against the Japanese Yen, one of the world’s safe-haven currencies, GBP exchanged at 162.02, down from 165.26 it traded on Tuesday.

The decline was broad-based as the embattled GBP also lost some ground against the Swiss Franc to exchange at 1.1568, down from about 1.1687 on Tuesday.

On Wednesday,  five lawmakers signed in one go. In their letter, they said “It has become increasingly clear that the Government cannot function given the issues that have come to light and the way in which they have been handled,” they wrote.

Selaine Saxby, Claire Coutinho and David Johnston were the latest lawmakers to tender their resignation on Wednesday.

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Naira

Naira Plunges to N621 at Black Market

The Nigerian Naira remained under pressure at the unregulated parallel market popularly known as the black market on Tuesday.

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Naira - Investors King

The Nigerian Naira remained under pressure at the unregulated parallel market popularly known as the black market on Tuesday. The Naira exchanged at N621 to a United States Dollar amid persistent foreign exchange scarcity.

At the Investors and Exporters’ forex window, the local currency dropped to N425.75 against the United States Dollar after opening the day at N422.25/US$1 on Monday. Forex traders in that segment of the forex market transacted $47.56 million in value and volume, Investors King reports.

However, Naira improved slightly against the U.S Dollar at the Central Bank of Nigeria (CBN) forex section. Naira exchange rate to dollar improved marginally from N415.86/US$ to N415.8.

Against the Pounds Sterling, the Nigerian Naira declined in value to N505.6544 from N500.6539. Similarly, against the European common currency, the local currency dipped slightly in value from N434.0331 to N434.7605.

Crude Oil

Oil prices dropped by $6 on Tuesday as concerns over the global recession containing demand outweighed supply concerns.

Brent crude oil, the international benchmark for Nigerian oil, declined by $6.65 to $106.85 a barrel while the U.S. West Texas Crude Oil lost $5.65 to $102.78 a barrel.

“Oil is still struggling to break out from its current recessionary malaise as the market pivots away from inflation to economic despair,” Stephen Innes of SPI Asset Management wrote.

Crude oil remains an important commodity for the Nigerian economy given its nature as a mono-product economy. Africa’s largest economy relies on crude oil revenue to service its economy and sustain its currency value against its global counterparts.

However, the inability to prop up crude oil production despite the increase in oil prices continued to hurt Nigeria’s foreign reserves and the availability of dollars in the economy. Hence, the Nigerian Naira is presently trading at a record low of N621 to a United States Dollar.

Cryptocurrency Exchange Rates

Global economic uncertainty ahead of the projected recession continues to dictate the performance of the cryptocurrency space in recent weeks.

Bitcoin extended its decline by 2.37% in the last 24 hours to $19,387.33 per coin. ETH, a token of the Ethereum protocol, lost 3.09% of its value to $1,079 a coin.

Meanwhile, Meta, formerly known as Facebook, has suspended its cryptocurrency project called Libra.  Celsius, a cryptocurrency lender, has paused withdrawals and announced plans to cut 150 jobs.

Cryptocurrency space market value dropped from over $2.5 trillion at its peak to about $900 million presently. The huge decline forced several players to cut losses and halt capital inflow into the cryptocurrency space.

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