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Forex Weekly Outlook January 16-20

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Forex Weekly Outlook January 16-20
  • Forex Weekly Outlook January 16-20

The US dollar declined against most of its counterparts last week, after president-elect insisted that companies importing into the U.S. must pay border tax, except they move their jobs to the U.S. Even though the retail sales surged 0.6 percent in December and the Federal Reserve Chair, Yellen Janet was certain the economy faces no serious short-term obstacles. The uncertainty surrounding the incoming administration is hurting the attractiveness of the US dollar.

But with the producer price index increasing 0.3 percent in December, and Trump expected to implement his aggressive fiscal spending, the Fed is likely to follow up with a similar monetary policy by hiking rates at least three times in 2017 to manage inflation. This is projected to renew the attractiveness of the US dollar and boost its exchange rate against its counterparts.

Nevertheless, investors are waiting for Yellen Janet speech due on Thursday for clues on monetary stance after consumer prices data scheduled for Wednesday has been released.

In the UK, industrial production rose 2.1 percent, after data showed consumer spending and services sector continued to support the economy. But the pound sterling plunged against most currencies yet again, as low business confidence about the future of the embattled economy impacts the attractiveness of the currency.

While, the market awaits inflation rate and Prime Minister May speech due on Tuesday for possible clues on monetary policy and Brexit direction, experts have said the Minister will signal “hard Brexit” by focusing more on regaining control of the Britain’s borders and laws as against the widely expected access to the European single market.

This, coupled with key economic data due this week could trigger volatility across the Pound pairs – especially the retail sales, Governor Mark Carney speech, earnings and unemployment rate.

Global Oil, the OPEC members for the first time shown commitment to their pledge, and their readiness to cut production further if the need be, but experts have said sustained price above $55 a barrel will spur more production and dampen current progress, as exempted countries are likely to go aggressive with production and exports. This was after data showed the U.S. output rose by 176,000 barrels a day last week and that the production forecast for the year has been raised also.

However, the surge in oil prices will support the growth of emerging economies and help reduce the foreign exchange gap likely to be created if the US Federal Reserve starts tightening monetary policy to manage consumer prices.

Overall, the financial markets look vague ahead of the new US administration and Brexit, but the US economy is strong and likely to remain so. This week, GBPJPY, USDJPY and last week pick top my list.

GBPJPY

The uncertainty created by the Brexit and prime minister May’s comments continued to hurt the Pound sterling. Even after peaking at 148 price levels 5 weeks ago, the pair has lost about 951 pips to trade below 142.42 support (now resistance) levels.

Forex Weekly Outlook January 16-20

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This week, as the world look to welcome Donald Trump as the 45th president of the United States of America, there is likely to be an increase in demands for safe haven currencies as seen last week. Hence, I will be looking to sell below 140.92 resistance for 134.90 as my first target. A sustained break of that level should open up 129.85 support (second target).

Forex Weekly Outlook January 16-20

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USDJPY

For similar reasons, this pair called the top after gaining about 1,384 pips since the emergence of Trump as the president of the U.S. But the pair lost about 250 pips following Trump’s first public conference last week to close at 114.43 support level. This, I will be treating as a risk concern ahead of the new administration’s inauguration. Therefore, I will be expecting the demand for the yen as a safe haven asset to increase while investors await a series of change the president-elect will be passing on to the senate and the ones likely to be approved.

Forex Weekly Outlook January 16-20

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This week, I will be looking to sell this pair below 114.43 price level for 111.81 targets, a sustained break could open up 109.56 support.

Last Week Recap

NZDCAD

This pair is actually unique for the simple fact that the New Zealand dollar gained its last week attractiveness from the increase in demand for safe haven assets and positive outlook of commodity dependent economies. Even though, when data showed its largest trading partner, China, is struggling with capital outflow and the needs to strengthen its overseas alliances to negate Trump’s likely sabotage of their trade relationship, the kiwi continued to gain.

On the other hand, the Canadian currency continued to enjoy strong economic data, increased exports, and moderate manufacturing activities, bolstered by the surge in global oil prices and proposed economic plan by the US president-elect to increase productivity in the US, its largest trading partner.

This week, I remained bearish on this pair as long as 0.9382 resistance holds.

EURCAD

Nothing has changed with EURCAD, last week view holds.

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

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Naira

Nigeria Hits Historic High as Currency in Circulation Surges to N3.69 Trillion

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naira

Nigeria’s currency in circulation surged to a historic high of N3.69 trillion, according to data released by the Central Bank of Nigeria (CBN).

This figure represents an increase of N43.07 billion or 1.18 percent from the total of N3.65 trillion reported in January 2024 and a 13.64 percent year-on-year rise from N3.25 trillion reported in February 2023.

Currency in circulation encompasses the physical cash, including paper notes and coins, actively used in transactions between consumers and businesses within the country.

The latest statistics indicate a considerable uptick in the availability of cash within the Nigerian economy.

The surge in currency supply comes amidst lingering concerns over a potential cash crunch following the monetary policy adjustments by the CBN, particularly the aggressive tightening stance of the Monetary Policy Committee (MPC).

Analysts attribute this spike to various factors, including the fear factor stemming from the cash crunch experienced in 2023 and lingering uncertainties surrounding the administration of physical currency.

Despite the surge in currency in circulation, Nigeria’s economic growth remains sluggish, with projections indicating growth rates of around 2.9 percent to 3.1 percent for 2024.

Also, inflation remains a significant concern, with the headline inflation rate climbing to 31.70 percent in February 2024 from 29.9 percent reported in January 2024, according to data from the National Bureau of Statistics (NBS).

The CBN’s proactive approach to monetary policy, including a historic increase in the monetary policy rate (MPR) to 24.75 percent, underscores the central bank’s commitment to addressing economic challenges and fostering stability amidst persistent pressures.

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Naira

Nigerian Naira Surges to N1,350 per Dollar in Parallel Market

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New Naira notes

The Nigerian Naira has appreciated to N1,350 per dollar in the parallel market, a significant gain from its previous rate of N1,430 per dollar just a day earlier.

Similarly, in the Nigerian Foreign Exchange Market (NAFEM), the naira strengthened to N1,382.95 per dollar, indicating an upward trend across key forex segments.

Data from FMDQ revealed that the indicative exchange rate for NAFEM fell to N1,382.95 per dollar from N1,408.04 per dollar on the previous day, representing a gain of N25.09 for the naira.

This surge in the naira’s value has widened the margin between the parallel market rate and NAFEM to N32.95 per dollar from N21.96 per dollar previously.

Analysts attribute this impressive surge to recent foreign exchange reforms implemented by the Central Bank of Nigeria (CBN).

These reforms, including the consolidation of exchange rate windows and liberalization of the FX market, have contributed to bolstering the naira’s strength against the dollar.

The CBN’s proactive measures aim to promote stability, transparency, and liquidity in the foreign exchange market, fostering confidence among investors and strengthening the national currency.

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Forex

CBN Governor Reveals $2.4 Billion Forex Forwards Under Investigation

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Naira Exchange Rates - Investors King

Governor Yemi Cardoso of the Central Bank of Nigeria (CBN) disclosed that law enforcement agencies are currently investigating foreign exchange forwards valued at $2.4 billion.

This announcement came in the wake of the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday, March 26.

Governor Cardoso shed light on the meticulous forensic audit conducted on these transactions, which uncovered numerous discrepancies, rendering them ineligible for payment.

The CBN, while settling certain tranches of FX backlog, encountered transactions riddled with issues concerning their authenticity.

To address these concerns, Deloitte management consultants were enlisted to conduct a comprehensive forensic analysis spanning several months.

The audit revealed a multitude of irregularities, including allocations disbursed without corresponding requests, lack of proper documentation, and instances of outright illegality.

Cardoso emphasized the gravity of the situation, stating, “We refused to validate them because, apart from the fact that documentation was not satisfactory in many cases, they were outright illegal.”

He underscored the commitment of law enforcement agencies to investigate these transactions thoroughly.

Despite concerns about potential backlogs among stakeholders, Cardoso assured that the market remains open and transparent for addressing any outstanding contractual obligations.

The CBN has diligently verified and settled recognized backlogs of forward transactions.

This revelation comes at a critical juncture as Nigeria grapples with economic challenges, including inflationary pressures.

The MPC’s decision to raise the benchmark interest rate to 24.75 percent reflects efforts to stabilize prices and restore the purchasing power of the average Nigerian.

As investigations unfold and regulatory scrutiny intensifies, the CBN’s commitment to transparency and financial integrity will be closely monitored by stakeholders across the nation.

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