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Forex Weekly Outlook December 19-23

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  • Forex Weekly Outlook December 19-23

Last week, the Federal Open Market Committee raised rates for this first time in a year, and the second time in a decade. The federal funds rate was raised by 25 basis points from 0.50 percent to 0.75 percent as the Federal Reserve was certain the economy is healthy and on the path to full recovery, after data from the labor market showed continued growth and sustained economic expansion at a 3.2 percent rate in the third quarter of the year.

While the slowdown in consumer spending in November has been attributed to the uncertainty surrounding the presidential election, the inflation rate pointed to a steady build-up in price pressures and predicted to support further rate hike in 2017.

Also, the committee projection of inflation rate rising to 2 percent in the first half of 2017 as lower oil prices fade and cost of import goods increases — will further boost the prospect for business investment in the US in 2017 through 2018. Again, most experts believe that the Trump economic plan will speed up economic growth and create more jobs, even though global uncertainty is expected to increase as the euro-area strive to strike a balance amid Brexit and political uncertainty.

In the UK, the Bank of England Governor Mark Carney left interest rates at a record-low of 0.25 percent, citing the persistent increase in prices of gasoline. This increase boosted inflation rate in October to 1.2 percent, the fastest in two years. Also, since the referendum, import prices continue to rise and surged 15 percent in November to its highest in 5 years, and expected by the apex bank to increase even more as the embattled nation seek to trigger article 50 of the Lisbon treaty in March 2017.

Accordingly, businesses are not creating new jobs, but merely sustaining current positions, hence, the reason unemployment rate remains 4.8 percent and employment plunged by 6,000 in the third quarter, suggesting that businesses are wary of socio-political situation in the UK and its region as the nation face its toughest test in years.

However, retail sales surged 0.2 percent in November, following a series of discount offered on Black Friday. This is projected to continue through December when household spending is usually higher.

In Australia, the unemployment rate rose to 5.7 percent in November, even though 39,300 jobs were created over the month. This was after data showed the economy contracted by 0.5 percent in the third quarter for the first time in years, while some experts have said it’s a one-off thing, the overall Australian economic outlook remains shaky ahead of 2017.

Overall, the US economy remains strong and expected to sustain current improvement in the medium term. However, global developments will play a pivotal role in determining the economic direction and how businesses approach it going forward. This week, as we round up the year, NZDUSD and EURGBP top my list.

NZDUSD

I first mentioned this pair sell-potential in May, ever since I have written extensively on the New Zealand economy in relation to the US dollar. However, Last week this pair closed for the first time in 5 months below 0.6989 support level that was first established in July. But this is significant because the price closed below the ascending channel drawn since May when the US dollar was weaker.

Forex Weekly Outlook December 19-23

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Economically, the FOMC statement released last week has bolstered the US dollar economic outlook against emerging currencies. This new US dollar attractiveness is likely to continue into 2017 and it is expected to extend current gain against the New Zealand dollar.

So this week, I will be looking to sell NZDUSD below 0.6989 price levels for 0.6771 support as the first target and a sustained break should open up 0.6580.

EURGBP

This pair topped our list three weeks ago, but closed mid-way to our 0.8240 targets last week. Confirming the importance of bearish pin bar of three weeks ago.

Forex Weekly Outlook December 19-23

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While the euro-area is yet to find a permanent solution to its socioeconomic issues, the UK is positive of retaining preferential access to the European Union 500 million consumer market after Brexit.

This coupled with strong consumer spending, low unemployment rate and moderate earnings continue to support the pound sterling over the euro currency for the past 7 weeks. This week, I will be looking to sell this pair below 0.8471 resistance level for 0.8240 targets, a sustained break should open up 0.8117 support as the second target.

Last Week Recap

AUDUSD

Last week, our first target hit at 0.7379, but the pair closed below July low giving a total of 209 pips. This week, I will be looking to capitalize on dollar current attractiveness to sell this pair below 0.7379 for my May 0.7203 projection for Aussie.

Forex Weekly Outlook December 19-23

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NZDCAD

Three weeks ago, I first mentioned the sell opportunity of NZDCAD pair and since then this pair has dropped 207 pips to close below our 0.9298 targets. This week, if the 0.9298 break is sustained I will look to sell this pair for 0.9141 support.

Forex Weekly Outlook December 19-23

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This is our last Forex Weekly Outlook for 2016. The 2017 global currency outlook will be out in Two weeks.

We wish you all a Merry Christmas and Happy New Year in Advance.

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.

Forex

Nigeria’s Diaspora Remittances Decline by 28 Percent to $16.8 Billion in 2020

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US dollar - Investors King

Nigeria’s diaspora remittances declined by 27.7 percent or $4.65 billion from $21.45 billion in 2019 to $16.8 billion in 2020, according to the World Bank Migration and Development report.

A critical look into the report shows remittances to sub-Saharan Africa declined by 12.5 percent in 2020 to $42 billion. This was largely due to the 27.7 percent recorded by Africa’s largest economy, Nigeria, which accounted for over 40 percent of the total remittance inflows into the region.

The report noted that once Nigeria’s remittance inflows into the region are excluded, remittances grew by 2.3 percent in 2020 with Zambia recording 37 per cent.

Followed by 16 percent from Mozambique, 9 percent from Kenya and 5 percent from Ghana.

The decline was a result of the global lockdown that dragged on the livelihood of most diaspora and unclear economic policies.

In an effort to change the tide, the Central Bank of Nigeria (CBN) introduced a Naira 4 Dollar Scheme to reverse the downward trend and boost diaspora inflows into the economy.

However, the reports revealed that other external factors like insecurities, global slow down, weak macroeconomic fundamentals, etc continue to discourage capital inflows.

On Tuesday, the CBN, in a new directive, announced it has halved dollar cash deposit from $10,000 to $5000 per month.

The move is geared towards discouraging overreliance on the United States Dollar and encourage local patronage and production.

Mr. Guy Czartoryski, Head of Research at Coronation Asset Management, had said in the report, “We looked at the top 10 banks and the breakdown of their deposits showed that 40 per cent of their deposits are in dollars and it is quite astonishing.”

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Forex

Deposit Money Banks Reduce Dollar-Cash Deposits by 50 Percent to $5000/Month

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United States Dollar - Investors King Ltd

Nigeria’s Deposit Money Banks (DMBs) have reduced the amount of United States Dollars that customers can deposit into their domiciliary accounts by 50 percent from $10,000 to $5,000 per month.

A bank official who preferred not to be mentioned confirmed the new policy to Investors King.

He, however, stated that the new policy does not apply to customers making electronic transfers as well as oil and gas companies and dollar payments into government accounts.

Checks revealed that the Central Bank of Nigeria (CBN) introduced the new policy to discourage the strong appetite for the United States Dollar, which has continued to rise.

A recent report has shown that despite persistent dollar scarcity, around 40 percent of bank deposits in the nation’s top ten banks were in dollars.

Mr. Guy Czartoryski, Head of Research at Coronation Asset Management, had said in the report, “We looked at the top 10 banks and the breakdown of their deposits showed that 40 per cent of their deposits are in dollars and it is quite astonishing.”

According to an analyst at ARM Securities Limited, Mr. Olamofe Olayemi, “this has to do with how much confidence the people have in the naira. Over time, we have seen significant depreciation in the naira.

“If you look at what happened in 2020, no one expected that the naira would be devalued twice in that year and even the outlook, this year is suggesting further depreciation in the naira.

“So, it makes sense to a lot of people to store their money in dollars. But, from the CBN standpoint, you agree with me that there is dollar scarcity.”

He, therefore, argued that the new policy might discourage financial inclusion and encourage cash outside the banking system.

Again, it is important for the flow of money to be captured in the system,” he said.

The CBN had extended its Naira 4 Dollar Scheme last week to further encourage dollar inflow into the Nigerian economy.

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Naira

Naira Closed at N411.25 to US Dollar at NAFEX Window

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Naira Dollar Exchange Rate - Investors King

The Nigerian Naira declined further against the U.S Dollar on Tuesday ahead of the Ramadan holiday to trade at N411.25 to a single U.S Dollar at the Nigerian Autonomous Foreign Exchange (NAFEX) window.

The local currency plunged as low as N420.23 per dollar during the trading hours of Tuesday despite opening the day at N410.33/US$ before settling at N411.25 to a US dollar.

Investors on the window exchanged $98.33 million on Tuesday.

At the parallel section of the foreign exchange, Naira traded at N483 to a United States Dollar; N673 to a British Pound and N580 to a Euro.

Foreign exchange rates remained largely unchanged at the bureau de change section, with the Naira trading at N482 to a U.S Dollar; N674 to a British Pound and N584 to a Euro.

Several factors continue to weigh on the Nigerian Naira, especially with the foreign reserves hovering around record low and crude oil output not at an optimal level.

Other factors like rising inflation rate and drop in economic activity due to COVID-19 effect on the economy and lack of enough fiscal buffer to cushion the economy.

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