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Forex Weekly Outlook May 15-19

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Forex Weekly Outlook November 7-11
  • Forex Weekly Outlook May 15-19

The US economic data released last week showed the economy is growing at a steady pace ahead of the next Federal Reserve meeting in June.

However, there were noticeable weaknesses in the figures. For instance, while the Producer Price Index rose 0.5 percent in April, the inflation rate rose less than projected –up 0.2 percent from plunging 0.3 percent in March.  Suggesting, perhaps the inflation is not rising as previously anticipated by policy-makers.

Similarly, retail sales climbed 0.4 percent in April. Also, below the 0.6 percent expected by experts but more than the 0.1 percent increase recorded in March.

This shows that while consumers are optimistic as shown by the University of Michigan consumer sentiment (97.7), inflation is hardly breaking out and wage remains soft. Therefore, it is unlikely that the Federal Open Market Committee (FOMC) will feel pressure enough to raise rates in June as that would impact wage and hurt consumer spending substantially.

In the U.K, factory production plunged further by 0.6 percent in March after declining 0.3 percent in February. Indicating that rising inflation has started affecting the manufacturing sector.

Also, the Monetary Policy Committee members voted to keep asset purchase at 435 billion with the official bank rate at 0.25 percent ahead of June 8 election.

Overall, the US economy remains resilient ahead of FOMC meeting in June, however, few inconsistencies may hamper June rate hike and possibly put a temporary stop to the current dollar rally as the market looks to the U.K. for clues on the possible direction of the Brexit.

This week, USDJPY and EURGBP top my list.

USDJPY

Last week this pair gave us 156 pips but was 8 pips short of our target 114.43. While I am not convinced that USDJPY would break 114.43 resistance, given current economic data, there is a probability of price hovering between 112-114 price level before a possible break below the descending channel. A sustained break below 112.47 support levels should increase sell orders and pressure price below 111.81 support levels.

USDJPYDaily

Therefore, this week I will be looking to sell this pair as the market looks to decipher FOMC stance ahead of June rate decision. An optimistic outlook would boost this pair rally and vice versa.

EURGBP

This pair closed as a dragonfly doji on weekly candlestick after data showed the U.K. factory output plunged for second consecutive month.

While this pair has failed to honor the head and shoulders formation shown in the chart, it should also be noted that price has remained above the neckline for the past 5 weeks and closed above 0.8471 resistance level for the first time last week.

Forex Weekly Outlook May 15-19

Again, with inflation rate rising and manufacturing sector slowing down, consumer spending that contributes about 70 percent of the economy would likely start reflecting those weaknesses. Therefore, this week I will be looking to buy this pair above 0.8471 support level with my target 1 at 0.8557 resistance, the 20-day moving average. A sustained break should attract enough buyers to open up 0.8717 resistance.

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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