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Forex Weekly Outlook November 7-11

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Forex Weekly Outlook November 7-11
  • Forex Weekly Outlook November 7-11

The US dollar continued to drop ahead of the US presidential election, even with a “positive” payroll report, the currency dip further. The labor market added 161,000 jobs in October, below the 174,000 expected by economists, but strong enough to validate Fed’s rate hike decision come December. This is because, the surge in wages to 2.8 percent (year-on-year) confirmed the optimum of the job market and the struggle to keep employees as employers compete for limited skilled-workers.

Also, the unemployment rate improved to 4.9 percent in October, despite the fact that the 12.1 percent of the “unemployed age group” voluntarily quit their jobs with the confidence of securing a high paying job. While, the participation rate that contributed to the 5 percent unemployment rate recorded in September declined, boosting the outlook of the job market.

However, there are discrepancies in the recent data that could change Fed’s growth approach and sustenance. For instance, productivity in the services sector fell to 54.8 in October from 57.1 percent in September, while business activity plunged to 57.7 in the same month. Even though, it still reflects expansion, stalling growth may begin to worry policy makers and prompt them to adopt what Fed Chair Yellen Janet called a “high pressure economy” during her last month speech — by going above her target for both employment and inflation in order to attract more investment and hiring to lower unemployment even further.

Nevertheless, the November 8 presidential election could change the entire global economic outlook and compel investors and businesses to adopt new growth model as they strive to comprehend the new government policy from the world largest economy. This week, high volatility is expected across board, but a Clinton presidency should stabilize the markets and reinforce the likelihood of the Fed’s raising rates in December and vice versa.

In the UK, the pound climbed on Thursday following the Bank of England (BoE) decision to leave interest rate unchanged at 0.25 percent, and a court ruling stopping the Prime Minister Theresa May from triggering article 50 of the Britain’s exit from the European Union without the U.K. parliamentary approval. While, the pound might extend its gains in the coming days as investors scramble to cover their short positions, the downward pressure is likely to persist due to economic uncertainty surrounding Brexit.

Accordingly, depreciation of the pound is expected to boost exports and reduce imports as UK products become affordable for overseas buyers and Britons choose to purchase locally made products, rather than expensive imported alternatives. Therefore, trade balance deficit is expected to exceed current level by 2017.

While, the U.K. fundamental point to growing economy with solid manufacturing sector (54.3), resilience services sector (54.5) and economic growth rate of 0.5 percent in the third quarter, the unexpected progress post-Brexit could be affected by the uncertainty in the UK economic outlook, and worsen if the country had hard-Brexit – ‘leaving the European Union without access to the single largest market of approximately 500 million consumers.’

“This is because EU deals are the biggest determinant of the UK economic outlook going forward.”

In Japan, the Bank of Japan held its annual 80 trillion yen ($764 billion) bond-buying program unchanged, while delaying the timing for reaching its 2 percent inflation target. Despite, inflation falling 0.5 percent in September — for a seven straight month and consumer spending declining 1.9 percent, the apex bank remained resolute in its current monetary policy (controlling short- and long-term rates and its asset-purchase programs).

According to the Bank of Japan Governor, Haruhiko Kuroda, the institution didn’t take additional monetary measures because the outcome of the US election will not just affect the U.S. economy but would have important implications on global economy, hence, the apex bank is keenly monitoring the outcome in relation to the global economic reaction to these developments.

In lieu of global developments ahead of US presidential election this week, the yen, will continue its gains against the US dollar and other perceived high-risk currencies as investors increase their holdings of haven assets in an effort to avert Brexit similar occurrence.  This week, AUDJPY and USDJPY top my list.

AUDJPY

On July 4th, I mentioned the significance of AUDJPY descending channel here, ever since, this pair has traded within the channel. Last week, AUDJPY failed to sustain its gains above 80.82 resistance, closing once again below the established channel as a bearish pin bar — this further validated the significance of the descending channel to the economic outlook of the pair.

Forex Weekly Outlook November 7-11

Another reason why this pair holds potential, is the increasing global uncertainty and risk ahead of the U.S. presidential election. Naturally, investors are risk averse, and gravitated towards haven assets to avert possible loss in case there is disparity in the outcome of the election and market expectation. In this case, the yen is a better haven asset and likely to attract more buyers this week.

This week, I am bearish on the AUDJPY as long as price remains below 80.82 resistance, I will be looking to sell below last week close of 79.08 for 76.25 as the target.

USDJPY

Last week, the US dollar lost 249 pips against the yen to close at 103.03, the lowest in a month. While, the US economy is vibrant, the uncertainty surrounding the election continued to weigh on the currency and has plunged it against all the majors. This week, I am bearish on USDJPY, one, because of the possibility of the pair to drop further as investors increase their holding of Japanese yen, while assessing the U.S. election result.

Forex Weekly Outlook November 7-11

This week, I will be looking to sell around 102.68, below 20-day moving averages, while targeting 101.47 first, with 100 as the second target. But a Clinton presidency will void this analysis and solidify the US bullish run.

 

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 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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Naira

Naira Faces Temporary Stability at the Official Window

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Naira Exchange Rates - Investors King

After closing at N415.07 on Wednesday, the currency temporarily rose to open at N413.58 per dollar on Thursday, before returning to close at N415.07 per dollar by the end of the day. This is according to the data obtained from the Investors and Exporters window.

The last few days have seen the emergence of marginal changes in the value of the Naira against the dollar, with the changes not being more than N1 or N2 at a time. The constant flux of the Naira at a marginal rate seems to suggest that the currency will remain at this level over the upcoming festive period.

This could however be changed, but only by drastic action on the part of the Central Bank of Nigeria.

The FMDQ website shows the Spot rate and Forward rate of the Naira, with the Spot rate representing the range of prices at which the Naira traded throughout an entire day. For Thursday, the Naira traded between N406 per dollar and N452 per dollar.

This means that all the dollar transactions that took place across Thursday took place with the Naira trading at a high of N406 per dollar and at a low of N452 per dollar. However, at the end of the day the Naira had settled down at N415.07 per dollar.

The Forward rate refers to the value of the Naira against the dollar which applies to transactions which have been agreed to take place in the future, and not immediately. Thursday’s forward rate was particularly low, with its highest coming at N452.61 per dollar, and the lowest falling in at N453.75 per dollar.

This could particularly discourage individuals or groups who would have been seeking to agree on some future deals on Thursday, with the low prices not spelling positivity for trade.

The turnover of the dollar recorded on Thursday sat ta $98.07 million, meaning that the entirety of the dollar traded across all the rates amounted to a little less than $100 million.

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