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Forex Weekly Outlook February 20-24

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  • Forex Weekly Outlook February 20-24

The US dollar gained against its counterparts last week, after data showed producers price index rose 0.6 percent and inflation also surged 0.6 percent in January. Buttressing the general perception that increased in gasoline cost will pressure consumer prices above the Fed 2 percent inflation target and force the FOMC to adjust interest rates.

However, wage growth remained below projection, plunging to 2.5 percent from 2.8 percent recorded in December, which is capable of hurting consumer spending (0.4%) that has been supporting the economy if the Fed hike rate with declining wages. Therefore, it’s unlikely the fed will move this March as widely speculated, however, Trump new tax policy due to be announced this week can change this view.

On tax policy, the possibility of law makers cutting corporate tax to 20 percent from current 35 percent and the Fed’s hawkish outlook boosted the attractiveness of the US dollar last week. Although, retail business owners are worried that the proposed border tax on import goods will hurt revenues and subsequently affect wages, law makers insisted it will help generate about $1 trillion needed to reduce the deficit. Hence, it is hard to quantify or deduce the US dollar direction ahead of new tax policy.

In the UK, the consumer spending (0.3%) that has been supporting the economy dropped for a third consecutive month in January, signaling that post-Brexit resilience is gradually coming to an end as high consumer prices (food and fuel) seems to have started hurting purchasing power even before March – stipulated date for triggering Brexit.

Consequently, job creation is gradually slowing down, according to the statistics office report for the final quarter of 2016. Also, pay growth fell to 2.6 percent in the same quarter, while labour market is still strong, the pace has cooled in recent time over Brexit uncertainty. Therefore, this is expected to weigh on the British Pound and render it unattractive as investors continued to look elsewhere to avert lost.

In New Zealand, consumer spending remains steady in the last quarter of 2016. Rising 0.8 percent, but the New Zealand dollar declined against its counterparts after RBNZ governor said the continuous gain of the currency could impede growth. Prompting traders to sell-off the haven currency. Overall, the global financial market remains vague ahead of Europe uprising and uncertainty in the US.

This week, GBPUSD and NZDJPY top my list.

GBPUSD

The series of events happening in the Euro-area continued to weigh on the pound outlook. However, Brexit and drop in consumer confidence standout. Whereas the US dollar remained strong and likely to continue so.

Forex Weekly Outlook February 20-24

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Technically, after the pair peaked at 1.2773 in December, its highest post-Brexit, it has lost about 363 pips and failed to top 1.2704 price levels attained this February. Again, the pair is trading below 20-days moving average on the daily candlestick and closed below weekly 20-days moving average, after the doji formed two weeks ago. Indicating the pressure is on the downside as the U.K. prepare to trigger article 50 next month.

Forex Weekly Outlook February 20-24

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This week, I am bearish on GBPUSD as long as 1.2500 holds and will be looking to sell below 1.2426 price levels for 1.2297 targets, a sustained break should open up 1.2148 in days to come. But a negative comment or perceived negative new policy from the U.S. can void this analysis as the world await Trump new tax policy.

NZDJPY

Last week, I wrote extensively on the New Zealand dollar outlook. While the economy remains strong and well-supported by the surging commodity prices, traders seem to be selling the pair after Governor Graeme Wheeler statement on the danger of high foreign exchange to the economy.

Forex Weekly Outlook February 20-24

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The pair called the top at 83.79 price levels, its 8-month high, and dropped 280 pips to close at 81.07 price levels. One of the reasons this is a good sell is the renewed interest in the Japanese yen as investors scramble for safe-haven assets ahead of numerous changes that will be taking place across the Group 8 nations. Again, I don’t think the pair is attractive enough to top its 8-month high after RBNZ statement. Hence, I am bearish on this pair this week and will be looking to sell below 81.02 support for 78.83 targets, a sustained break should boost its attractiveness for 76.23 targets 2.

Last Week Recap

NZDUSD closed below the channel last week but failed to meet our target of 0.6989. However, I remain bearish on NZDUSD this week, one, for the reasons stated above, and two, the continuous gain of the US dollar should aid NZDUSD bearish move below 0.7124 support levels, that also serves as 20-days moving average.

Forex Weekly Outlook February 20-24

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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.

US Dollar

CBN Warns Against Rejection of Old and Lower US Dollar Bills

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Global debt

The Central Bank of Nigeria (CBN) on Tuesday has warned both the Deposit Money Banks (DMBs), Bureau De Changes and other forex dealers against rejecting old and lower US dollar denominations.

In a circular dated April 9th, 2021 and signed by Ahmed B. Umar, Director, Currency Operations Department, CBN, the apex bank said it has received several complaints from members of the public on the rejection of old and low denominations of US Dollar bills by authorised forex dealers operating in the country.

The CBN, therefore, mandated all DMBs/authorised forex dealers to accept both old series and lower denominations of United States Dollars (USD) that are legal tender for deposit from their customers.

The leading bank added that it will not hesitate to sanction any DMB or other authorised dealers who refuse to accept old series and lower denominations of US dollar bills from their customers.

Also, the apex bank warned all authorised dealers to desist from defacing and stamping US Dollar Banknotes as such notes always fail authentication test during processing and sorting.

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Naira

Naira Remains Under Pressure Amid Weak Macro Fundamentals

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Naira Dollar Exchange Rate

The Nigerian Naira plunged as low as N422 to a United States Dollar on the NAFEX window on Wednesday before moderating to N410 following a series of weak macroeconomic fundamentals released in recent weeks.

Nigeria’s inflation rate increased by 18.17 percent year-on-year in March while the unemployment rate rose to 33.33 percent with new job creation hovering at a record low amid weak economic productivity.

The commodity-backed currency traded at N486 to a US Dollar on the parallel market popularly known as the black market.

Against the British Pound, the local currency was exchanged at N670 and N577 to a Euro common currency.

At the Bureau De Change segment of the foreign exchange market, Naira traded at N482 per US Dollar; N670 per British Pound and N580 to a Euro.

In an effort to up revenue generation and ease exposure to the unstable global oil market, the Federal Government of Nigeria had removed electricity tariffs, fuel subsidy, introduced other import related charges and devalued the local currency more than three times in the last 12 months despite the negative impact of COVID-19 on the masses.

The series of adjustments dragged on economic productivity as importers and other forex-dependent businesses struggle with persistent dollar scarcity largely due to low foreign reserves of $35 billion caused by weak crude oil production and OPEC production cap.

The apex bank’s inability to service the economy with sufficient dollar to ease liquidity challenges in spite of various measures introduced recently to lure diaspora to remit more escalated prices of goods while the surge in electricity tariff, petrol price and other increments were passed on to already stressed customers.

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US Dollar

Dollar Drops as Traders Prepare for Inflation Data

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Forex Weekly Outlook October 31-November 4

The dollar slipped on Monday towards a three-week low as Treasury yields traded near recent lows and traders awaited crucial U.S. inflation and retail sales data in coming days.

Elsewhere, it was a quiet start to a data-heavy week for foreign exchange markets. The euro climbed back above $1.19 while the British pound rebounded from a two-month low.

The dollar’s performance has been tied to U.S. Treasury yields for most of 2021, after concern about rising inflation in the United States and a stimulus-fueled economic rebound triggered a jump in Treasury yields in February.

A fall in U.S. yields last week triggered the worst week for the dollar in 2021. With yields inching lower on Monday, it was back under pressure.

Federal Reserve Chairman Jerome Powell said in a U.S. media interview released on Sunday that the U.S. economy was at “an inflection point” and looked set for a strong rebound in the coming months, but he also warned of risks stemming from a hasty re-opening.

Investors are now waiting for U.S. March inflation data due on Tuesday.

“We are set to see the first evidence of the much anticipated surge in inflation that is widely expected through the coming months as base effects from a year ago begin to take effect as the sharp declines post-COVID start to fall out of the annual calculations,” MUFG analysts said.

They said the dollar’s fortunes could well “remain linked to 10-year yields”.

The benchmark 10-year Treasury yield was at 1.664% after dropping to as low as 1.6170% last week. It had surged to a more than a one-year high of 1.7760% on March 30.

The dollar index, which measures the U.S. currency against a basket of currencies, weakened 0.2% to 92.03. The euro initially dropped but later recovered and was up 0.1% to $1.1915.

Bitcoin traded above $60,000, closing the gap to its record high.

Against the pound the dollar initially gained before reversing course. The British currency was last up 0.5% at $1.3763 after briefly touching a two-month low of $1.3669 as traders cheered the latest phase of the government’s economic re-opening plan.

The dollar fell 0.3% to 109.33 yen versus the Japanese currency.

U.S. dollar net short positions have fallen to their lowest in nearly three years, according to data published on Friday.

ING analysts noted that speculators had cut their net short dollar positions for the 12th consecutive week, which could prove a headwind for further dollar gains.

“At this stage, the dollar has lost all its positioning “advantage”, having a neutral speculative positioning, which suggests we should no longer see dollar rallies against most G10 currencies exacerbated by the unwinding of USD shorts,” they wrote.

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