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Forex Weekly Outlook October 3-7

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Forex Weekly Outlook October 3-7

The US dollar retreated against the Euro-single currency on Friday, after the Deutsche Bank was said to have reached an agreement with the US Department of Justice (DOJ) to pay $5.4 billion to settle its mortgage-securities investigation instead of the original proposition of $14 billon. However, other factors contributed to the drop in the exchange rate of the US dollar, even though the consumer confidence (104.1) rose to its highest in 9-year and second quarter GDP was revised upward to 1.4 percent from 1.1 percent previously estimated. The Federal Reserve chair, Yellen Janet failed to convince the market that the decision to held interest rates at record-low wasn’t politically motivated, after Donald Trump accused the Fed chair of creating “a big, fat, ugly bubble” by leaving interest rates this low.

Again, three members of her own rate-setting group announced last week that they preferred to raise the federal funds rate by 25 basis points, which in turn validated the notion of disenchantment in the group. Nevertheless, the economy continued to create jobs at a solid pace but unemployment rate remains between 4.7 – 4.9 percent — which signifies that as some are being employed some are leaving for whatever reasons.

Although, the Federal Reserve Chair said that as long as monetary policy remains accommodative, that the economy would overheat and eventually pushed unemployment rate downward and boost inflation. But the question now is can this be sustained? This is one of the reasons the Federal Reserve is holding back, considering the fact that businesses tend to create lesser jobs with high borrowing cost and drop in job creation will lead to a surge in the unemployment rate and eventually drop in consumer spending that has been the backbone of the economy. So, according to the Fed Chair, it is risky to remove the accommodation as it is, hence, the no timetable for rate decision. This week, investors are waiting to see if Non-farm payroll added more jobs in September from the 151,000 recorded in August, and if the manufacturing (49.4) and services (51.4) sectors have picked up from August lows.

In Europe, the Euro-single currency plunged early in the week, following news of 12 hedge fund management companies withdrawing about $6.4 billion from Deutsche Bank, Europe’s largest investment bank, over concern the institution could go the way of Lehman Brothers if it failed to meet its multibillion dollar’s fine by the DOJ.

Currently, the region is struggling with the aftermath of the Brexit and lackluster growth which includes weak consumer prices (0.8%) and stagnant unemployment rate (10.1%). All these are expected to weaken business sentiment in the region and lead to more capital flight in the days to come — particularly with a judge in Milan, Italy approving prosecutors’ request on Saturday to try 13 bankers, including six current and ex-managers of Deutsche Bank over colluding to falsify the accounts of Italy’s third-biggest bank and manipulate the market.

I think it is going to get worse, even though a Deutsche Bank representative said the institution have enough liquidity to withstand withdrawals, trust and business confidence are going to drop as clients strive to make sense of the whole situation. Hence, Euro-single currency is expected to dip henceforth. Depending on Deutsche Bank proffer solution and market interpretation of such move.

In Japan, the economy continued to struggle with weak exports and low consumer prices even after introducing the “yield curve”. The data released last week showed consumer spending dropped 4.6 percent in August, while inflation (-0.4%), housing starts (2.5%) and unemployment rate (3.1%) are below expectation. The Bank of Japan last week shifted its focus to aiding banks’ profitability by making sure long-term bonds’ rates remain sufficiently above current negative rates, so banks can profit from lending into Japan’s stagnant economy. But the increase in demand has pushed yields on 10-year bond below BOJ’s zero target to -0.09 percent. This is likely to force BOJ to take action soon, if the whole yield curve concept is to be effective and the yen gains to be subdued.

In Algeria, OPEC members agreed last week to cut production to a range of 32.5 to 33 million barrels a day for the first time in 8 years. The announcement boosted crude oil prices and commodity currencies, before Iranian Oil Minister Bijan Zanganeh questioned the benchmark figure used by OPEC for the proposed production cut. Market experts are beginning to doubt the possibility of divided OPEC to go through with such decision come November when the members will meet again in Vienna, Austria.

As it is, the financial markets is largely being driven by speculators – what market participants perceived or interpreted a certain action by central banks or the Deutsche bank and the entire Europe region to be as uncertainties and  risks associated with investment has increased across the globe. Therefore, traders are advised to be cautious as we seek to decipher Deutsche Bank situation, BOJ new yield curve policy and Non-farm payrolls this week. However, EURAUD and NZDUSD to my list this week.

EURAUD

Since our target was hit at 1.5020 three weeks ago, this pair has lost 355 pips. I believe the attractiveness of the Australian dollar due to the series of positive macro data released recently will push this pair further down. Again, I am pricing in the possibility of euro-single currency dropping more this week as the market digest Saturday’s news of 6 current executives and ex-managers of Deutsche Bank approved by an Italian judge for investigation. This will likely worsen the currency position against its counterparts.

eurauddaily

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Technically, since this pair closed as bearish pin bar three weeks ago and validated that by closing bearish two weeks ago, and even last week. The price action has turned bearish and with the uncertainties in the Europe area, we might see 1.4486 this week. Hence, as long as 1.4777 holds, I am bearish on EURAUD this week with 1.4486 as the target.

NZDUSD

Last week, I was bearish on NZDUSD but OPEC decision to cut production bolstered all commodity currencies, even though US macro data were positive the doubt created by Federal Reserve Chair Yellen Janet weighs on the dollar strength. This week, I remain bearish on this pair because one, as long as 0.7362 resistance holds, this pair is bearish. Two, the New Zealand trade balance figure released last week revealed that deficit rose to 1265 from -351 previously recorded. This means, exports dropped more than estimated which is yet to reflect in the pair due to US fed issues.

nzdusdweekly

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This week, as long as 0.7362 resistance holds, I am bearish on this pair with 0.6989 as the target. But price below 0.7253 support will confirm downward movement.

NZDJPY

Last week, I was bearish on NZDJPY but OPEC decision to cut production daunt the outlook. So this week, I will be standing aside on NZDJPY to assess Japan’s “yield curve concept” and market reaction to increase in demand that has pushed yields on 10-year bond below BOJ target.

 

 

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 Maintains Stability at Official Fx Window

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500 and 1000 naira bills (Nigerian currency)

The Naira maintained its streak on Monday, settling to close at N415.07 per dollar. This is the same price at which the Nigerian currency has closed for the last few days, according to the Investors and Exporters window where the Naira is traded officially.

While there have been very marginal differences in the opening prices over the last days, in the end the currency has come around to settle down at the same price (N415.07 per dollar) at the close of each day.

On Friday, the Naira opened at N413.71 per dollar which represented a 0.03% change from the previous day, according to the Investors and Exporters window. On Monday, the currency opened at a similar price, starting the day off at N413.75 per dollar.

Although there have been minimal changes in the opening prices, generally the currency opens at similar prices, with backgrounds of N413 per dollar and changes of only a few kobo.

While the general opening and closing prices didn’t witness much change, the same cannot be said for the Spot and Forward rates. On Friday, the Spot rate was between N404 per dollar and N444 per dollar. However, Monday saw a significant change in the Spot rate. Across all transactions that occurred on Monday, the naira reached a high of only N405 per dollar (N1 lower than Friday’s high), and went on to reach a low of N456.97 per dollar (N12 lower than the previous day).

The Forward rate – for future transactions that were agreed upon on Monday – saw a more significant change. Friday’s Forward rate high was recorded at N411 per dollar, but on Monday that fell greatly to N452 per dollar. However, Monday’s Forward rate lowest was N453 per dollar, about N2 better than the N455 per dollar at which it traded on Friday.

The total turnover of the dollar recorded on Monday sat at $256.69 million. This was considerably higher than the turnover of $215 million that was recorded on Friday.

At the parallel market on Monday, the Naira fell to close at N569 per dollar from the N560 per dollar at which it traded the previous day. After that exponential rise to about N535 per dollar, the parallel market is seeing the Naira return even closer to the N575 per dollar price at which it had sat for a while.

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Naira

Naira Stays Flat at Official Market

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Dollar to Naira Exchange Rate - Investors King

After closing at N415.07 per dollar on Thursday, the Naira maintained a flat rate and went on to close at the exact same price on Friday. This is according to the data released by the FMDQ group, on the group’s official website.

This connotes a certain stability around the currency, as the recent rates at which the currency has been closing at in recent days and weeks have hovered around this particular price range. It further strengthens the idea that the festive period will see the Nigerian currency trade at that range.

The FMDQ group as usual also updated the Forward rate and the Spot trade of the Naira’s trades on Friday. The prices appeared to have returned to some of the usual, standard rates which they consistently traded for a while.

The Spot rate returned to its usual price range, falling as low as N444 per dollar and rising up to N404 per dollar. What this means is that throughout the entire day, the Naira traded at different prices at different times, trading between N404 per dollar and N444 per dollar.

For the Forward rate, a high of N411 per dollar was reached while a low of N455.97 per dollar was gotten. The Forward rate, which is used for future transactions generally trades at lower prices than the Spot rate.

On Friday, the total turnover of the dollar sat at $215.47 million. Turnover refers to the amount of the currency that is involved in the trade throughout the entire day. Everything that was traded on Friday amounts to 215 million dollars. This was a huge increase from the turnover of the previous day, which sat at $98 million.

It has been reported that in a bid to save the naira, the Central Bank of Nigeria threw a little over $2 billion into the Investors & Exporters window in the seven months to July this year (2021). In the corresponding period last year, the apex bank only injected $628 million into the window.

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Forex

Haven Currencies Gained Across the Board as Investors Assesses New COVID Variant

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Investors are moving their funds to known safe-haven currencies to curb risk exposure while they evaluate the effect of the new covid variant on global financial markets.

Two cases of the new Covid variant called B.1.1.529 that emanated from South Africa were reported in Hong Kong on Friday, increasing concerns it could hurt global economic recovery and compel nations to start closing their borders going into the new year.

Leading safe-haven currency, the Japanese Yen gained against the United States Dollar to 113.151 at 8:40 pm Nigerian time, down from 115.450 it attained on Thursday as shown below.

Similarly, the Swiss Franc outperformed other currencies as its attractiveness surged among global investors looking to avert catastrophe amid rising global uncertainties.

Swiss Franc rose against the United States Dollar to 0.92187 from 0.93604 it peaked on Thursday before news that the United Kingdom and other nations were considering shutting their borders.

The Euro rebounded against the United States Dollar after plunging from 1.18905 it traded in August to 1.12039 before paring losses to 1.13129 when the news of new covid variant became a concern.

Surprisingly, gold, a known haven asset, failed to sustain its earlier gain and pulled back from $1815.46 to $1788.10 at the time of writing. Another indication of rising global uncertainty.

Even experts like Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA, had earlier predicted that gold will shine given its characteristics as a haven asset.

He said “Times like this are when gold shines and we’re seeing investors flock back to an old reliable friend today. It has pulled a little off its highs after hitting $1,815 earlier in the session but it remains above $1,800 at the time of writing. It’s an interesting one for gold and bonds, as the situation now is very different from last year.”

Investors however seems to be dumping the tradition risk aversion commodity for something more stable, especially with bitcoin and other cryptocurrencies now doing better number in terms of gain in a period like this.

Crude oil has dropped more than 5 percent or $10 today as energy traders aggressively closed the positions to better assess the situation.

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