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Forex Weekly Outlook September 19 – 23

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CBN

The US dollar gained against all the major currencies last week, following better than expected inflation report released on Friday. This, coupled with the comments from Federal Reserve officials bolstered the attractiveness of the US dollar as investors/traders jumped on it in anticipation that the Federal Open Market Committee (FOMC) will raise borrowing cost.

While, speculations formed the bulk of the unsustainable dollars’ gains. It is imperative to note that the dollar’s gains was partly the reason import prices dropped from an increase of 0.1 percent in July to a decline of-0.2 percent in August, this drop in prices is expected to weigh on September consumer price index and damped August recorded progress.

Again, the drop in consumer spending (-0.3%) and worse than expected producer prices (0.0%) record in August are pivotal to Fed’s rate decision — especially with industrial production (-0.4%) and capacity utilization (75.5%) declining at the same time.  Hence, the disconnection between macro data and current dollar bullish run should be closely watched per adventure the Bank of Japan decided as that will either shift current dollar gains to the Yen or boost it even further. This week, volatility is expected as the FOMC meets to announce economic projection and federal funds rate on Wednesday.

In Australia, the unemployment rate dropped to three-year low of 5.6 percent in August, despite the loss of 3,900 jobs. The contradictory result confirmed Capital Economics insinuation that the fall in jobs was a bit bigger than it looked. Also, the weak wages and low consumer spending at a record low unemployment rate point to an economy that is struggling and grossly ambiguous.

In the UK, the pound lost part of its gains last week after data revealed that producer price input dropped to 0.2 percent from 3.1 percent and that consumer prices remained unchanged at 0.6 percent even with the weak pound. Although, unemployment rate remained 4.9 percent, average earnings dropped from 2.5 percent to 2.3 percent and consumer spending managed to exceed expectation by declining 0.2 percent against the 0.4 percent widely expected.

This week, the world awaits the Bank of Japan decision (BOJ) after over three years of unconventional monetary policy called qualitative and quantitative easing (QQE). The Hahuriko Kuroda team is expected to expand its monetary policy in an effort to boost exports and fight off insistent low consumer prices, and also halt the continuous gain of the Yen. Accordingly, the financial markets will experience high volatility this week as both the Fed and BOJ attempt to further their economic growth amid high global risks and uncertainties.

Overall, the financial market is yet to find its rhythm as central banks strive to strike a balance between fiscal and monetary policy. This week, GBPJPY and EURAUD top my list.

GBPJPY

After the series of weak macro data released last week, the pound lost more than two weeks’ gains against all the major currencies. While the reports were not that bad, the impact on the pound showed how vulnerable the UK economy is to eventualities, as such greater attention should be given to this pair this week. Especially with the Fed and BOJ economic statement due on Wednesday.

gbpjpydaily

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Technically, after breaking 134.90 support level established in June. This pair has changed its outlook to the downside, while we need the BOJ decision to further validate this prediction. I am bearish on GBPJPY with 129.85 as the target, as long as 134.90 resistance holds.

EURAUD

Last week, our target hit at 1.5000. But since then Euro-area economic outlook has changed after Mario Draghi decision to leave rates unchanged. The Euro-area industrial production dropped from 0.8 percent to -1.1 percent, while both German and Euro-area ZEW economic sentiment also plunged. All these combined with weak manufacturing sector and post-Brexit uncertainties are weighing on the euro-zone economic outlook.

eurauddaily

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While, the Australian economy on the other hand, improved its unemployment rate to three-year low and has consistently used its broad financial base to enforce investors’ confidence in its economy, even though capital importation has seen a decline in recent time. The economy remained vibrant against the Euro single currency. This week, I am bearish on EURAUD as long as 1.5000 resistance holds, 1.4777 remains the first target and 1.4665 target two.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Naira

Naira to Dollar Exchange Rate Improves Slightly to N414.07/US$1

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Naira Notes - Investors King

Naira to Dollar exchange rate improved further at the official foreign exchange window on Wednesday despite the ongoing economic uncertainties.

The local currency opened the day at N414.18 to a United States Dollar before closing at N414.07, representing an improvement of 0.16 percent gain.

During the day, Naira plunged to as low as N442 to a United States Dollar at spot fx market. While at the fx future market it was fairly stable at N419. Forex traders exchange $334.97 million on Wednesday.

However, the Central Bank of Nigeria published exchange rates revealed that the United States Dollar was sold at N410.89 on Wednesday to banks. The British Pound and Euro were sold at N565 and N477.74, respectively.

Central Bank of Nigeria’s Foreign Exchange Rate

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Naira

Naira Gained 0.08 Percent to N414.73 Against the United States Dollar on Monday

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Naira - Investors King

The Nigerian Naira gained against the United States Dollar on Monday after falling to a record low of N422 per US dollar on Friday at the official forex window.

The local currency opened at N414.46 to a United States Dollar, a 0.15 percent improvement from Friday’s closing price.

Naira dropped as low as N425 to a United States Dollar at the spot forex market and to N429.50 at the forward forex market before closing at N414.73 to a United States Dollar at the spot forex market. Forex traders traded $172 million at the official forex window on Monday.

Forex scarcity across key foreign exchange segments and the decision of the central bank of Nigeria to halt the sale of forex to Bureau de Change operators continue to impede forex access in Africa’s largest economy.

Vice President Osinbajo had suggested that the apex bank should look to adopt a new forex policy to better close the gap between the black market and official rates. At the unregulated black market, traders are selling at N570 to US dollar.

This, the Vice President said was what was sustaining the black market.

For context, the Vice President’s point was that currently the Naira exchange rate benefits only those who are able to obtain the dollar at N410, some of who simply turn round and sell to the parallel market at N570. It is stopping this huge arbitrage of over N160 per dollar that the Vice President was talking about. Such a massive difference discourages doing proper business, when selling the dollar can bring in 40% profit!, stated Laolu Akande, Senior Special Assistant to the President on Media & Publicity, Office of the Vice President.

“This was why the Vice President called for measures that would increase the supply of foreign exchange in the market rather than simply managing demand, which opens up irresistible opportunities for arbitrage and corruption.”

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Naira

Naira Plunges to Record Low of N422/US$1 at Official Market

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Naira Dollar Exchange Rate - Investors King

The Nigerian Naira extended its decline to N422 to a United States Dollar at the official forex market, the investors and exporters forex window managed by the FMDQ Group.

Naira opened the day at N413.50 to a US Dollar before plunging to as low as N436 at the spot forex market and N446 at the forward market. The local currency eventually closed the day at N422.07 per US Dollar.

Investors at the window traded $141.94 million during the trading hours of Thursday.

The decline was after Vice President Osinbajo asked the Central Bank of Nigeria (CBN) to rethink its current forex policy and allow the Naira to reflect market conditions. This, the Vice President said will help close the current gap that exists between the official rate and black market rate.

Media outlets had interpreted the Vice President position as a call for further devaluation of the Nigerian Naira. However, in a statement signed by Laolu Akande, Senior Special Assistant to the President on Media & Publicity, Office of the Vice President, Akande explained that Osinbajo is simply calling for a single forex rate to dislodge the activities of speculators and hoarders at the various unregulated black market.

He added that the 40 percent or N160 arbitrage difference between the official rate of N410 and N570 offered at the black market will continue to encourage corruption in the forex market.

“For context, the Vice President’s point was that currently the Naira exchange rate benefits only those who are able to obtain the dollar at N410, some of who simply turn round and sell to the parallel market at N570. It is stopping this huge arbitrage of over N160 per dollar that the Vice President was talking about. Such a massive difference discourages doing proper business, when selling the dollar can bring in 40% profit!

“This was why the Vice President called for measures that would increase the supply of foreign exchange in the market rather than simply managing demand, which opens up irresistible opportunities for arbitrage and corruption.”

At the black market, traders exchanged Naira at N565 to a United States Dollar on Thursday.

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