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Euro’s Rally Is Looking Extreme When You Examine the Technicals

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  • Euro’s Rally Is Looking Extreme When You Examine the Technicals

While it may not be apparent at first glance, the euro is beginning to show signs of peaking.

A series of technical indicators are pointing toward a near-term top for the shared currency, and even raising the risk of a correction versus the dollar after climbed to a 30-month high Wednesday. That may seem hard to fathom after traders said the Federal Reserve policy meeting left them with a dovish outlook, but some popular market gauges suggest taking a closer look.

Going into the meeting, positioning in the dollar, as measured by U.S. Commodity Futures Trading Commission data, was extremely bearish. Speculative short positions are at the highest level since 2013. Speculators were even more bullish the euro, with net longs at the highest since 2007.

This data is seemingly verified by one technical study that measures trend strength and bullish/bearish momentum, the Direction Movement Index (DMI). This barometer shows bulls dominating the daily price action for the last 106 days, the longest uninterrupted streak since the euro’s approach to $1.50 in 2009.

Another J. Welles Wilder study, the relative strength index, shows the euro overbought on a daily and weekly basis. The weekly RSI reading of 72.50 is the highest since November 2007, a few months before the currency pair reached an all-time high of $1.6038.

The strength of the euro’s upward trajectory this year becomes clear when accounting for historical price action. Of the 22 technical strategies available for backtesting on the Bloomberg BTST function, the best performing trading strategy for euro this year has been a simple buy and hold. Scaled to time, euro longs have been rewarded for over six months and the trend has been so strong that the euro left a price gap when rates jumped from $1.0738 to $1.0821 after the French presidential elections in April.

Elliott Wave and Fibonacci analysis suggest that the euro may be nearing a top. The Elliott Wave study is close to completing the fifth wave of a price appreciation sequence that began Jan. 3. In theory, the euro should subsequently enter the first phase of a three-wave drop.

A five-year snapshot of the euro shows Fibonacci resistance at $1.1736, the 38.2 percent retracement from this year’s low to the May 2014 high of $1.3993. Looking further back, $1.1685 is the 23.6 % retracement level off the all-time high of $1.6038.

The euro’s ascent this year has coincided with a drop in volatility across currencies and asset classes, potentially indicating that markets are tied to cheap dollar funding. In this sense, a euro trend reversal similar to that seen in the spring of 2014 may not only spark a broader dollar rally but additional asset volatility.

What event may trigger the dollar rally? One does not need a fundamental reason to buy or sell when using technical analysis — simply a signal.

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

US Dollar to Naira Bank Rate Today – See Investorsking Daily Currency calculator

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Naira Dollar Exchange Rate

US Dollar to Naira Bank Rate Today and Details of Macro Fundamental Challenges Hurting the Naira

US dollar to naira bank rate today remained largely unchanged at around N386 to a US dollar. However, currency traders can check the daily US dollars to the Naira exchange rate using our currency calculator.

On the black market, US Dollar to Naira exchange rate stood at N468 on Wednesday morning, a decline of N1 from the N467 it traded on Tuesday. Suggesting that economic uncertainties continue to dictate Naira value despite central bank efforts at supporting the local currency.

The apex bank had lowered the monetary policy rate to stimulate growth and broaden economic productivity just a few weeks after resuming forex sales to the bureau de change operators across the nation.

Also, the federal government announced a survival fund to support micro small and medium businesses impacted by COVID-19. All these are yet to reflect on the economy or the naira value as weak sentiment regarding project recession in the third quarter continued to outweigh any positivity.

While interest rate reduction had bolstered the attractiveness of the Nigerian Stock Exchange in the last one week, it is yet to reflect on Naira value as forex scarcity has impeded manufacturers and other import dependent businesses from access the US dollar for their raw materials.

Even with the US Dollar to Naira bank rate trading better when compared to the black market rate, it is generally inaccessible as banks have capped the foreign spending limit to $100 per month, meaning small import businesses that depend on Dollar to Naira bank rate to operate will struggle henceforth.

These numerous macro fundamentals issues amid a 27.1 percent unemployment rate and over 13 percent inflation are affecting investors’ confidence in Africa’s largest economy.

The central bank US Dollar to Naira exchange rate remained N379 but available at N380 to banks that also added operating cost and spread to between N383 and N386 depending on the bank you are dealing with.

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Bureau De Change Operators Begs CBN to Approve Electronic Forex Trading

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BDCs Seek  CBN Approval Electronic Forex Trading

Bureau de change operators (BDCs) on Wednesday begged the Central Bank of Nigeria to approve the usage of electronic foreign exchange trading to ease demand pressure and facilitate comfort.

Alhaji Aminu Gwadabe, the President of Bureaux De Change Operators of Nigeria (ABCON), made the appeal during a webinar organised by its member with the theme ‘The Impact and Roles of BDCs Challenges and Way Forward.’

Gwadabe urged bureau de change operators to adhere to the rules guiding forex transactions by selling at an appropriate rate stipulated by the CBN.

Gwadabe said: “Technology is a threat whether we like it or not and we have been urging the CBN to allow us operate within the payment space. Our request to the CBN and the federal government is to continue to empower us more especially in the payment space.

“The world is now in the fourth generation and it is no more in the traditional method of doing business even agriculture is digital, so we are appealing to the CBN to allow us be on the digital payment space. As this will deepen the economy, further converge the rate, further deepen liquidity and empower the BDC.

Continuing, Gwadabe said: “Some of us want to be ungodly and trading on parallel market rate is highly unacceptable. The CBN has said it is highly unacceptable, ABCON has said it is highly unacceptable and so we are calling on all the directors of BDCs to please ensure that you don’t sell to willing customers. Any willing customer that says he wants to buy at N465 is not your customer and they would land you sanctions and get penalties.

He added that monies found on operators carrying out illegal trades would be seized by the relevant authorities.

He said: “Any dollar you found trading on the street is going to confiscated and would become federal government’s property. Any dollar you try to courier via border movement at the airport is also government property.”

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Naira to Dollar Exchange Rate in 2020

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Naira to dollar exchange rate in 2020 declined by N73 from N306 Central Bank of Nigeria sold it in the beginning of the year to N379 and N386 on the investors and exporters forex window.

The Naira to dollar exchange rate in 2020 has been marred by a series of economic uncertainties and weak macro fundamentals caused by the COVID-19 pandemic.

At the beginning of the year, the official Central Bank of Nigeria’s naira to dollar exchange rate stood at N306 to a US dollar, while on the parallel market popularly known as the black market, the local currency was exchanged between N350 to N360 per US dollar.

On the investors and exporters’ foreign exchange window instituted by the central bank to mirror a free market, the naira was exchanged at N325 to a United State dollar.

However, unclear economic direction amid a 50 percent increase in Value Added Tax from 5 percent to 7.5 percent and border closure hurt the Nigerian economic outlook and plunged investors’ confidence in the economy even before COVID-19 outbreak.

This weak sentiment metamorphosed into broader economic decline when COVID-19 broke out in the country on February 27 2020 as investors that were doubting President Buhari economic path see no reason to wait any longer or believe Nigeria has what it takes, in terms of the health system, to contain an impending health catastrophe.

The surged in demand for US dollar by those looking to move their funds out of the country compelled Governor Godwin Emefiele led central bank to adjust the Nigerian Naira foreign exchange rate from N306 to a US dollar to N360 in order to discourage capital flight while simultaneously sustain dwindling foreign reserves.

But with global oil prices plunging to as low as $15 per barrel, below Nigeria’s $17 per barrel cost of production and demand for the commodity, especially Nigeria’s crude oil at almost zero during the peak of COVID-19, foreign investors were willing to lose N54 per US dollar to exit the Nigerian market.

According to a JPMorgan report, central bank forex backlog was over $5 billion, yet foreign reserves continues to drop. Left with little to no choice, the federal government approached the International Monetary Fund (IMF) for $3.4 billion financial assistance while the apex bank devalued the Naira again to the currency $379 to a US dollar and N386 on the investors and exporters window.

Despite the negative impacts of COVID-19 on the Nigerian people and the broad-based decline in economic activities that saw the nation’s Gross Domestic Product (GDP) contracting by 6.10 percent in the second quarter of the year and the unemployment rising as high as 27.1 percent or 21.8 million people in an import-dependent economy, the apex bank did not just devalue the Naira twice, the Federal Government raised electricity tariffs and remove subsidy in an economy with very weak consumer spending.

With the series of economic uncertainties, investors in forex forward market in London started offering Naira future contracts for N545, saying the apex bank no longer have the resource to support the Naira given the current global situation.

True to their words, Naira to Dollar exchange rate in 2020 plunged to N480 on the black market amid persistent forex scarcity before recently moderating to N467 when the central bank resumed forex sales to the bureau de change operators across the country.

Also, with the economy expected to plunge into an economic recession for the second time in four years in the third quarter of 2020, the Naira to Dollar exchange rate is expected to suffer even further in 2020.

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