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Forex Weekly Outlook July 17-21

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  • Forex Weekly Outlook July 17-21

The US dollar plunged against G-10 currencies after data signals the Federal Reserves might not raise rates for the third time this year.

This is because the retail sales fell 0.2 percent in June after declining by 0.1 percent in May. Suggesting that consumers were cautious about spending even with a healthy labour market.

Also, the consumer prices remain steady following a 0.1 percent decline in May. While the lackluster pricing is largely due to the drop in gasoline cost, the inflation rate is below Fed’s 2 percent target and differ Fed chair Yellen Janet’s statement that a healthy labour market would gradually filter through other sectors of the economy and boost wage growth while simultaneously bolstering inflation rate towards Federal Reserves’ target.

In Canada, the Bank of Canada raised overnight cash rate by 25 basis points to 0.75 percent, citing broad growth and strong labour market. This further boosted the loonie attractiveness against the US dollar to over a year high of 1.2648. According to the central bank, the Canadian economy remains robust with growth broadening across industries and regions. However, the bank estimated that real growth will moderate from 2.8 percent projected in 2017 to 2.0 percent in 2018 and 1.6 percent in 2019.

This Week, USDCAD, AUDJPY and EURCAD top my list.

USDCAD

The uncertainty surrounding the US rates hike and the political sphere continue to weigh on the US dollar attractiveness. While Canadian dollar was boosted by the Bank of Canada decision to raise overnight cash rate for the first time in 7 years, the economy remains healthy and projected to sustain current cash inflow for the remaining half of the year.

Forex Weekly Outlook July 17-21

Technically, the bearish flag pattern started in Jan 2016 signifies bearish breakout after closing below 1.3142 three weeks ago but affirmed bearish continuation following a sustained break of 1.2849 support level last week. Therefore, this week I will be expecting USDCAD to sustain current bearish move with 1.2494 as the first target. A sustained break of 1.2494 support levels should open up 1.2217.

AUDJPY

The Australian dollar continues to gain against the Japanese Yen, bringing its total gain since June to 634 pips. This is 4 pips below 15-month high established during Donald Trump’s rally as shown below. Again, while the Australian economy is expected to strengthen amid improved business conditions and the surge in capacity utilisation, the Japanese Yen is weighed upon by almost zero inflation rate and weak wage growth.

Forex Weekly Outlook July 17-21

Therefore, this week, I will expect a sustained gain above the 88.17 price levels to open up 90.32 targets. For two reasons, one the weak US economic data that cast doubt on rates hike bolstered Aussie dollar to a two year high against the dollar, meaning there is a surge in demand for the Aussie dollar, especially after the hawkish statement from the central bank.

Two, while Japanese Yen is partly affected by political uncertainty surrounding Prime Minister Shinzo Abe’s party lost in Tokyo, Australia remains free of a political conundrum.

EURCAD

While the Euro-single currency has sustained its gain against most currencies. It has failed to do the same against the Canadian dollar, losing 753 pips since peaking at 1.5256 in June.

Also, for the first time since April, the pair closed below 1.4602 last week and established a bearish pin bar candlestick to validate bearish continuation.

Forex Weekly Outlook July 17-21

Therefore, if the EURCAD break 1.4444 support level, below the trendline as shown above. I will be looking to sell for 1.4398 targets and expect a break of that level to boost the EURCAD attractiveness towards 1.4172 support level, target 2.

 

Last Week Recap

CADJPY

Target 2 was hit last week, however, the volume of trade was low due to the growing uncertainty in the region, especially from the US, Canada’s largest trading partner.

Forex Weekly Outlook July 17-21

This week, I remain bullish on this particular pair and will expect a sustained break of target 2 to open up target 3 as explained last week.

GBPCAD

Last week, this pair gave us 225 pips, hitting our target 1 at 1.6497 and was 2 pips short of our target 2, 1.6353, before rebounding to close above 1.6497 levels.

Forex Weekly Outlook July 17-21

However, as long as price remains within the descending channel and below resistance level of 1.6704. I remain bearish on this pair and will be looking to sell at a better price.

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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Forex

CBN Resumes Forex Sales as Naira Hits N1,570/$ at Parallel Market

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The Central Bank of Nigeria (CBN) has resumed the sale of foreign exchange to eligible Bureau De Change (BDC) operators.

The decision was after Naira dipped to N1,570 per dollar in the parallel market,

CBN announced that it would sell dollars to BDCs at a rate of N1,450 per dollar. This decision aims to address distortions in the retail end of the forex market and support the demand for invisible transactions.

Following the CBN’s intervention, the dollar, which recently traded as low as 1,640 per dollar, has shown signs of stabilization.

The apex bank’s action is expected to inject liquidity and restore confidence among market participants.

BDC operators have welcomed the move. Mohammed Magaji, an operator in Abuja, noted that the dollar was selling at 1,630 per dollar.

He emphasized the market’s volatile nature but expressed optimism about the CBN’s intervention.

Aminu Gwadebe, President of the Association of Bureau de Change Operators of Nigeria, attributed the naira’s decline to acute shortages, speculative activities, and increased demand due to recent duty waivers.

He praised the CBN’s action as a necessary step to alleviate market pressures.

The CBN’s efforts include selling $20,000 to each eligible BDC, with a directive to limit profit margins to 1.5% above the purchase rate.

This strategy aims to ensure that end-users receive fair rates and to curb inflationary pressures.

The CBN’s ongoing reforms seek to achieve a market-determined exchange rate for the naira. As the naira continues to navigate turbulent waters, stakeholders remain hopeful that these measures will lead to a more stable and liquid forex market.

Market analysts suggest that sustained interventions and increased access to foreign exchange could help reverse the naira’s downward trend.

The CBN’s actions demonstrate a commitment to tackling the challenges facing the foreign exchange market and supporting Nigeria’s economic stability.

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Finance

Nigeria’s FX Inflows Leap 57% as CBN Steers Economic Confidence

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Nigeria’s foreign exchange (FX) inflows have surged by 57% over the past year, signaling newfound stability for the Naira.

Analysts attribute this growth to the Central Bank of Nigeria’s (CBN) consistent policies, which have bolstered investor confidence and enhanced market stability in Africa’s most populous nation.

Data from the CBN reveals that FX inflows rose to $8.86 billion in February 2024, compared to $5.66 billion in February 2023.

This increase is a testament to the effectiveness of the CBN’s strategic measures. Similarly, foreign exchange turnover skyrocketed 180% year-on-year to $240.64 million in February 2024.

“The upsurge in FX inflows reflects the positive impacts of increased interest rates and the relative stability of the exchange rate,” said Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting.

He noted that high interest rates in Nigeria are attracting investors seeking better returns compared to developed countries.

The CBN has actively engaged with foreign investors, addressing concerns and providing insights into monetary policy actions.

Olayemi Cardoso, the CBN governor, emphasized that investor confidence has been restored, partly due to the bank’s clearance of a $7 billion foreign exchange backlog.

New investments into Nigeria also increased significantly, reaching $1.24 billion in February 2024, compared to $0.33 billion in January 2024. This uptick is indicative of a more stable and attractive investment climate.

Analysts point out that improved oil production and higher global oil prices have significantly boosted FX earnings.

Also, government policies aimed at attracting foreign investment, along with strategic management of the exchange rate, have played pivotal roles in this economic revival.

The CBN’s efforts to diversify the economy and boost non-oil exports are starting to yield results.

Increased diaspora remittances, facilitated by better official channels and incentives, have further contributed to the rise in FX inflows.

While challenges remain, the positive trend in FX inflows suggests a more robust and stable economy, encouraging further investment.

Consistent and transparent economic policies are expected to enhance investor trust, stabilizing the Naira and fostering a more favorable exchange rate environment.

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Naira

Naira Hits Five-Month Low Amid Dollar Demand Surge

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Nigeria’s naira extended its losing streak to a fifth consecutive day as it slipped to its weakest level since March despite the Central Bank of Nigeria’s (CBN) interventions.

The naira closed at 1,577.29 per dollar on Monday, down from Friday’s N1,563.8 per dollar on FMDQ.

This decline comes despite the CBN’s efforts to stabilize the currency by injecting $122.7 million through dollar sales into the market.

However, analysts argue that these amounts were insufficient to balance the robust domestic demand for the greenback.

“The CBN has been in the market selling $50 million from time to time, which is not enough,” commented Carlo Morelli, senior portfolio manager at Azimut Investment SA.

Morelli attributes the persistent pressure on the naira to capital outflows and a lack of investor confidence in the currency, despite the central bank’s commendable efforts in tightening monetary policy and reducing naira liquidity.

Central Bank Governor Olayemi Cardoso has aggressively raised interest rates in an attempt to curb inflation and stabilize the naira.

The benchmark borrowing rate now stands at 26.25%, following an increase of 14.75 percentage points since May 2022.

However, the currency has weakened by approximately 70% against the dollar since exchange-rate controls were eased last year.

“Restoring foreign exchange broad confidence is the last step, and the huge volatility in May delayed the return to normalcy,” Morelli added.

“Many foreign investors are still waiting for more evidence of stability before considering Nigeria investable.”

The naira’s decline makes it the second-worst performing currency tracked by Bloomberg in 2024, trailing only the Lebanese pound.

The recent depreciation has been fueled by both seasonal dollar demand and ongoing investor skepticism.

The central bank’s next policy decision, set for July 23, is expected to address these issues. Monday’s data showing annual inflation quickened to 34.2% in June suggests that another rate hike might be on the horizon.

In a bid to bolster the naira, the central bank has increased Nigeria’s foreign exchange reserves to $35 billion as of July 8, the highest level since May 30, 2023.

This boost is attributed to recent loans from the World Bank and the African Export-Import Bank.

Omobola Adu, an analyst at BancTrust & Co. Investment Bank, noted that recent pressure on the naira has also stemmed from corporates and individuals preparing for foreign vacations.

“Boosting the supply of FX into the country remains crucial for the government to alleviate pressure on the naira,” Adu stated.

He suggested that a eurobond or local dollar bond sale later this year, along with increased support from multilateral institutions, could help shore up reserves.

Despite these challenges, Central Bank Governor Cardoso remains optimistic, asserting that the worst of the currency’s volatility is over.

He reiterated this sentiment on Thursday in Lagos, addressing business leaders and highlighting improvements in crude output and capital inflows as positive signs.

Nigeria, Africa’s largest crude producer, relies heavily on oil sales, which account for at least 80% of its export earnings.

The country’s combined crude oil and condensate output rose to 1.5 million barrels per day in June, the highest since February, according to the upstream petroleum regulatory commission.

“While the naira may be undervalued, for the naira to stabilize and perhaps regain ground, large portfolio and capital inflows are needed,” said Samir Gadio, head of Africa strategy at Standard Chartered Plc in London.

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