- Forex Weekly Outlook Feb 26-30
Last week, the U.S. dollar rebounded on higher bond yields and strong optimism following the hawkish FOMC minutes of Wednesday. According to the Fed, the labor market remained strong and economic activity continued to rise at a solid rate, both backed by the growing household spending, solid business fixed investment and low unemployment rate.
However, the committee highlighted the low inflation rate, saying while market-based measures of inflation have increased in recent months, inflation is still running below the 2 percent target. This explained why the long-term inflation expectations are little changed.
Still, experts are projecting three to four rate hikes in 2018, especially with the U.S. dollar now correlated with the treasury yield once again and 10-year treasury yield rising to almost 3 percent after reaching a four year high of 2.9537 percent on Wednesday and predicted by both Bank of America and Goldman Sachs to reach 3.25 percent by year-end.
But the rising U.S. deficit and increasing capital flight from the U.S. equity to Europe still remain a concern, and may further disrupt dollar’s outlook. However, investors are looking towards Fed’s Feb 27 testimony by the new Chair Jerome Powell at the House Financial Services Committee in Washington DC for a clue on interest rate hikes and economic standing. A hawkish view could further boost fixed income attractiveness and strengthens the U.S dollar economic outlook against emerging currencies.
In the Euro-area, the services PMI unexpectedly declined to 56.7 in February, down from 58 recorded in January. Despite the unexpected results in the first two months of the first quarter, the numbers showed the economy is growing at a quarterly rate of 0.9 percent. Therefore, economic growth in the region remained strong in 2018 and likely to compel the European Central Bank to stop its asset purchasing program by the end of the year. But Italian election and German coalition remained a concern.
In Japan, the Yen strengthens against the U.S. dollar as investors capitalized on Japan’s eight straight quarters of consecutive expansion over Europe’s 2017 strong economic growth rate. This suggests are investors doubting the possibility of the Euro sustaining its bullish run against the greenback above 1.2569, especially with the fiscal stimulus and growing uncertainty ahead of Italy election of March 4th.
Therefore, the reason the Yen has been attracting buyers that are boosting its value to close higher against the U.S. dollar last week after reaching a two-year high of 105.54 two weeks ago. Even though the Bank of Japan has not hidden its dissatisfaction of rising Yen strength, economists believe strong Japan’s trade surplus and good overall economic outlook makes it a perfect haven currency for investors, despite its negative impact on the profit margin of Japanese companies.
This week, USDJPY, EURUSD, NZDJPY, GBPJPY, and NZDUSD our list.
The U.S dollar rebounded on strong optimism last week but quickly lost more than half of its gains against the Japanese Yen as investors favoured the haven currency because of its recent economic momentum and uncertainty surrounding the Euro single currency ahead of Italian election and German coalition in March.
While investors are expecting a hawkish Fed testimony on Tuesday, it may not substantially boost the U.S. dollar’s attractiveness against the Yen as attentions are now on the bond market because of rising interest rates and uncertainty due to the rising deficit. Therefore, investors are likely to sustain their bearish view on the USDJPY pair going forward.
Technically, this was evident in the last week’s candlestick that closed as a bearish pin bar. Confirming bearish pressure despite increased optimism following Fed minutes. Hence, as long as 108.03 resistance holds, I remain bearish on this pair as projected in January and expect a break below the 105.57 support level to open up 104.16 as shown above.
While the Euro single currency remained strong, backed by strong economic fundamentals, the chances of the 19-nation currency sustaining its current bullish run above 1.2569 resistance level remained investors headaches, especially now that the U.S. economic fundamentals — wage growth, inflation rate, etc. are picking up, with a potential three rate hikes in the picture this year. We might see a break of 1.2180 support levels if Fed remained convincingly hawkish on Tuesday and ahead of the Italian election. A sustained break should open up 1.2005 support levels. However, a break above the 1.2569 could open up a new high at 1.2748.
Also, note that a break of 1.2180, which was last tested in January 2018, could reinforce sellers’ interest for a more aggressive selloff. Therefore, a break of 1.2180 will be the key in determining entry.
The New Zealand retail sales rose from 0.3 percent in the third quarter of 2017 to 1.7 percent in the final quarter of the year, beating analysts’ prediction of 1.4 percent. The better than expected consumer spending bolstered the Kiwi outlook against other emerging currencies like the Australian dollar last week but not against the Japanese Yen as shown below.
One, this is because the Japanese Yen remained attractive across the board. Two, the rebound in consumer spending in New Zealand might be due to the usual high Christmas shopping. This is because credit card spending rose from 2.9 percent in October to 9.1 percent in November and 6.3 percent in December before dropping back to 4.6 percent in January. Suggesting weak wage growth is still a concern despite rising job creation.
Therefore, I will expect the renewed interest in the Japanese Yen to further pressure NZDJPY pair towards 77.89 support levels. A sustained break of 77.07 support levels should open up 76.02.
The uncertainty surrounding the British economy continued to weigh on key economic fundamentals. For instance, the Office for National Statistics revised down the U.K economic growth for the fourth quarter of 2017 to 0.4 percent against the 0.5 percent previously estimated, saying consumer spending and production during the quarter were not as strong as previously estimated. Another indication that rising consumer prices are hurting the British consumer and the reason the overall 2017 economic growth rate was revised down from 1.8 percent to 1.7 percent, the weakest in five years and the weakest growing major economy.
This was why the pound dipped last week and the candlestick, as shown above, closed as a bearish pin bar. Again, while the volume of trade is low, I think the strong Yen may aid sellers’ interest and further pressure this pair below the ascending line at 146.81.
In the last 5 days, since the hawkish Fed statement, the NZDUSD has dropped 140 pips to close below 0.7326 resistance level. Even though, emerging currencies like New Zealand dollar enjoyed safe haven status, the U.S. rising interest rates will boost its attractiveness against emerging currencies like the Kiwi that depends on China and better global commodity market for growth.
If the Fed as generally expected remained hawkish and sets the tone for an aggressive rate hike or strong economic outlook in 2018, we could see a drop below the 0.7267 support level, down below the ascending channel to 0.7226 support levels.
Naira Remains Flat Against US Dollar, Euro
Naira Exchange Rate Remains Flat Against US Dollar and Euro on Black Market
The Naira remained unchanged on Tuesday despite the curfews and social unrest that grounded the nation’s economy.
Naira traded at N463 against the United States dollar on the black market on Tuesday morning, the same rate it exchanged on Thursday.
Against the European common currency, the Nigerian Naira exchanged at N540 to a single Euro.
However, the local currency dipped slightly against the British Pounds as it exchanged at N595 to a British Pound, representing a N3 decline from N592 it traded on Friday.
Social unrest amid weak economic fundamentals continued to weigh on Nigeria’s local currency, especially with Foreign Direct Investment expected to drop in the final quarter of the year through the first quarter of 2021.
This coupled with weak foreign reserves and a drop in global demand for crude oil is expected to compound Nigeria’s economic woes.
Lagos State governor, Babajide Sanwo-Olu, has said Nigeria’s commercial capital needs at least N1 trillion to fix the destruction and vandalisation that trailed the #EndSARS protest in the state. An amount equivalent to the state’s annual budget.
Experts, who spoke on the situation, said it would hurt the nation’s output and may plunge fourth-quarter GDP by as much as 6.9 percent. These rising uncertainties amid the second wave of COVID-19 and possible lockdown in key trading partners could further plunge Naira value against global counterparts in the fourth quarter of the year.
Transparent Exchange Rate Can Boost Nigeria’s Forex Inflow
Transparent Exchange Rate Can Improve Nigeria’s Diaspora Forex Inflow
Experts that gathered at a virtual summit organised by Ecobank Nigeria with a theme, ‘Financial Services & Remittance Solutions for Nigerians in Diaspora: Leveraging Ecobank’s Pan-African offering’, have said Nigeria can boost foreign exchange inflow through proper engagement and a transparent exchange rate.
Mr. Patrick Akinwuntan, Managing Director of Ecobank Nigeria, in his opening speech, said growing evidence has shown that diaspora remittances were positively impacting economies of various nations in the world.
Akinwuntan put the total annual remittances to Nigeria at around $20 billion per year, saying it boosts the nation’s foreign exchange earnings.
Speaking on how these remittances can be sustained, he said constant engagement with Nigerians abroad is imperative and it is the reason Ecobank is leveraging its digital technology through Rapidtransfer App and Ecobank mobile App to ensure affordable and easy transfer of funds by Nigerians abroad to their home country.
“Our dedicated Rapidtransfer, mobile remittance app is a game-changer for the market. It enables Africans and indeed Nigerians wherever they are to easily and instantly send money to bank accounts, mobile wallets and cash collection in – and across – 33 African countries.
“Historically, the cost of sending cross-border remittances to Africa has been far too high at about 6%-7%. Similarly, the process to send funds has long been inefficient and burdensome, with customers typically needing to go physically to an agent sometimes late in the night or in poor weather with attendant discomfort and risks.
“The Rapidtransfer app remittance solution is a quick, easy and reliable digital solution that removes all of these issues. It is indeed a game-changer for Nigerians and all Africans with its sustainable and standout affordability,” he said.
Speaking on transaction charges, the Ecobank Managing Director said transfer fee range from zero to about 3 percent as compared to 6 – 7 percent charge elsewhere.
He added that the bank’s instant transfer and transparent exchange rate is a unique factor its competitors do not possess.
Naira to Dollar Rate Today: Naira Exchanges at N463 to Dollar on Black Market
Naira to Dollar Rate on Black Market Today Stood at N463
The Nigerian Naira to dollar rate slid slightly against the United States dollar on Tuesday on the black market as social unrest continues to weigh on the nation’s economic outlook.
The local currency lost N1 against the US dollar to N463 while against the British pound it remains pressured at N592.
This decline continues against the European Union’s common currency, the Euro. The Naira traded at N540 to a single Euro on the black market.
Naira to dollar rate plunged amid rising economic uncertainties and unclear policy path caused by both COVID-19 and government limited fiscal buffers to cushion the negative impacts of the virus on Africa’s largest economy.
This coupled with the ongoing social unrest by the Nigerian youths to force decorum across the Nigerian Police Force and call global attention to decades of systemic intimidation and harassment of innocent citizens.
The Nigerian Stock Exchange has been closing flat since Thursday and continued this week, suggesting that investors are concerns and wary of eventualities as they look to safeguard their investments.
Again, the projected third-quarter recession, low foreign revenue generation, weak consumer spending and the rising cost of living are some of the factors hurting the Nigerian Naira outlook.
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