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Forex Weekly Outlook January 23-27

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  • Forex Weekly Outlook January 23-27

Last week, the US data showed inflation rate rose 0.3 percent in December, while industrial output rebounded from 0.7 percent to 0.8 percent, with a capacity utilization rate of 75.5 percent. Although, the economy continued to churn out data in-line with the Federal Reserve projection for maximum employment and price stability, the US dollar dip during the week.

This is because the uncertainty surrounding the new administration’s likely policy going forward and global events like Theresa May’s proposed Brexit’s exit strategy is hurting the attractiveness of the dollar.

However, the Federal Reserve Chair, Yellen Janet, said with the unemployment rate nearing its longer-run normal level and likely to move a bit lower this year, the labor market remains healthy and will continue to create more jobs. This is one of the reasons investors are positive the Fed will raise rates at least 3 times this year, hence, the surge in demand for bonds.

In the UK, the Prime Minister Theresa May on Tuesday pitched post-Brexit strategy to the world and finally succumb to pressure to allow the parliament to vote on the final Brexit deal, a clause that changed the mid-term outlook of the pound as businesses, investors and stakeholders believe the deal has to be inclusive before parliament will approve it. This bolstered the pound to its highest two-day rally since 2009.

While, the UK economy continued to sustain its 4.8 percent unemployment rate, rising average earnings of 2.8 percent from 2.6 percent and strong consumer spending. The governor of the Bank of England Mark Carney sees weaker growth and rising inflation rate in 2017. Largely, the pound outlook remained uncertain as the country gets ready to exit the European Union 500 million consumers’ market.

In China, the economy grew by 6.8 percent in the 4th quarter of 2016, beating 6.7 percent forecast by analysts. While, on a yearly basis the industrial output rose by 6 percent, slightly below the 6.2 percent recorded a year earlier. The Chinese economy remains moderately strong as capital outflow that saw about $305 billion leave the economy in 2016 has started declining, while fixed asset investment surge to 8.1 percent (ytd).

Overall, the global financial is expected to remain uncertain until investors can deduce succinctly the direction of central banks’ policies, and most importantly the series of changes the 45th president of the United States of America will be making to fiscal policy.

GBPUSD

Last week, the pound gained 431 pips against the US dollar after Theresa May’s speech on Brexit strategy. But the pair remains below the 1.2534 resistance level that doubled as 20-day moving average.

Similarly, the drop in demand for the US dollar contributed to the pound gain, which means an increase in dollar demand this week could dampen the pound progress and reinforce the continuation of long-term bearish trend.

Forex Weekly Outlook January 23-27

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However, sustained break of 1.2534 resistant levels, will likely increase buyers’ interest and open up 1.2809 resistance levels as target 2. But failure to break 1.2534 will increase sellers’ interest. So this week, I will be monitoring price action alongside comments from policy makers to trade GBPUSD.

CADJPY

The series of data released last week showed Canadian economy is still struggling with weak inflation rate (-0.2%) and low consumer spending. Although, the manufacturing sector has started picking up, but the uncertainty surrounding crude oil and the increase in demand for haven asset continued to aid CADJPY.

Forex Weekly Outlook January 23-27

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This week, I am bearish on this pair as long as 86.36 resistance holds. While looking to sell below 86.03 price levels for 84.04 targets.

Last Week Recap

GBPJPY

The prime minister May’s comment bolstered all pound against its counterpart last week, hence, invalidating our projection for this pair. This week, I will stand aside to monitor price action better.

Forex Weekly Outlook January 23-27

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USDJPY

This pair retraced 4 days to the inauguration after dropping about 180 pips. This week, I remain bearish on this pair and will look to sell below 114.43 support level.

Forex Weekly Outlook January 23-27

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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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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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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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