- Forex Weekly Outlook June 12-16
The uncertainty in the global financial markets weighed on the foreign exchange outlook amid a series of political uprising across top financial nations. While the diverse policies formulated to aid economic growth towards Central Banks’ target have not been outright effective, the data from the U.S, Euro-area, Japan, etc remain solid, even as commodity dipped across the board.
The euro single currency has gained about 7 percent against the U.S dollar this year, however, the European Central Bank president Mario Draghi on Thursday lower inflation forecast to 1.6 percent through 2019, while revising upward the economic growth rate and maintaining the same size of bond-buying program. This indicates that the apex bank has no exit strategy for QE yet, especially after confirming there is still downside risk to growth—which further creates mixed outlook of the Euro single currency.
Again, while the US dollar has been battered by the US political uncertainty, the recent economic data remained moderately strong. Also, the FBI James Comey testimony did little to nothing to alter the US dollar strength. But the weak job data and slow wage recorded in May are likely to prevent the Federal Open Market Committee from raising rates on Thursday.
Technically, it is unlikely this pair will break the 8 months high recorded at 1.1299 price level after ECB mixed economic outlook of the Euro that prompts sell-off of this pair. Therefore, I will be looking to sell this pair below the 1.1190 levels that double as the 20-day moving average for 1.1117 targets, and expect a sustained break to attract enough sellers to sustain the selloff towards target 2 as shown above.
The Pound Sterling plunged after Theresa May’s Conservative Party failed to secure 326 seats needed to form a majority government on June 8. Pushing risks exposure and market uncertainty to a new height after economic data showed consumer spending that contributes 70 percent of the economy and housing prices declined.
On the other hand, the Japanese Yen continued to gain from strong economic growth and relatively stable politics. Even though, the Bank of Japan governor Haruhiko Kuroda said Japan is far from meeting its inflation target of 2 percent, the haven currency is like to continue to gain against the Pound ahead of Brexit talk and U.K political uncertainty.
Since I first mentioned this pair sell potential last week, it has dropped 187 pips, however, that is below our first target of 134.90. Therefore, this week I remained bearish on this pair for two reasons: One, the last week candlestick closed below the 20-day moving average, and further validated the pound sell-off. Two, the politics in the U.K and poor fundamental will plunge long term investment that will gradually hurt earnings and job creation. Eventually, weak business confidence and high consumer prices will hurt domestic demand and the Pound strengths.
Accordingly, I will be looking to add to my sell order below the ascending channel at 139.33 for 134.90 take profit this week.
Please note that after our first target was hit on USDJPY last week. The pair rebounded to 110 price levels. Therefore, this week I will be standing aside to better monitor price action.
Naira Remains Under Pressure Amid Weak Macro Fundamentals
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.
Dollar Drops as Traders Prepare for Inflation Data
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.
Naira Daily Foreign Exchange Rates for Friday, April 9, 2021
Naira exchanged at N485 to a United States Dollar on Friday, April 9 2021 at the parallel market. Against the British Pound, it traded at N670 and N574 to a Euro.
Naira Black Market Exchange Rates
Morning * Midday** Evening *** Final Rates
Bureau De Change Naira Rates
Central Bank of Nigeria’s Official Naira Rates
|4/9/2021||SOUTH AFRICAN RAND||26.0329||26.0672||26.1016|
Finance3 weeks ago
List of Microfinance Banks’ USSD Codes In Nigeria
Government4 weeks ago
US Intelligence Says ISIS and Al-Qaeda Are Planning to Attack Southern Nigeria
Education2 weeks ago
COVID-19: 2021 WASSCE May Not Hold in May/June – WAEC
Education2 weeks ago
JAMB Puts 2021 UTME/DE Registration on Hold
Brands2 weeks ago
LG To Close Mobile Phone Business Worldwide
Technology3 weeks ago
FG Extends NIN-SIM Linkage by Four Weeks
Telecommunications4 weeks ago
Nokia, Safaricom Partner to Launch East Africa’s First Commercial 5G Services in Kenya
Government2 weeks ago
Approved Ibom Deep Sea Port, Proposed $1.4B Fertilizer Plant Will Change Akwa Ibom’s Economic Status – Gov. Udom