- Forex Weekly Outlook January 15-19
The German coalition agreement and the change in European Central Bank’s stance towards monetary policy boosted Euro attractiveness against G10 currencies last week. The Euro single currency rose to a 3-year high against the U.S. dollar following a series of weaker than expected economic numbers.
The Euro gained 163 pips against the U.S. dollar to trade above 1.2116 levels on Friday, suggesting that the strong economic growth in the region amid political accord reached in Germany is supporting Euro bullish run. Even though the region economy remained strong with rising demand, the U.S. fundamentals are equally strong with consumer prices gradually picking up and businesses like Wal-Mart announcing pay rise following the tax cut. The U.S. economy is poised for more gains in 2018.
Therefore, break of 1.2116 levels is needed to validate bullish continuation, especially with the odds of the Fed raising rates many times in 2018 increasing. Again, while 1.2500 price level is feasible in 2018, we don’t see it just yet and will treat the current upsurge as a temporary bullish move.
In the U.K., the pound sustained its gains against the U.S. dollar for the fourth week in a roll despite the uncertainty surrounding the Brexit and slowdown in economic data. The pound has gained 420 pips against the U.S. dollar in the last one month to peak at an 18-month high for two main reasons, one, traders believe the pound is undervalued and sold off merely because of Brexit uncertainty. Two, the resiliency of the economy, despite political and economic uncertainties, to expand better than expected in 2017 while at the same time maintaining a record-low unemployment rate. Means, the widely projected global economic growth and expanding economic activities would boost British economic outlook better in 2018 and support the sluggish wage growth.
Again, while the weak U.S. dollar aided this pair move above the 1.3665 level, the renewed interest in the pound is likely to further bolster the pair towards 1.3798 resistance level. Hence, we remain bullish on GBPUSD in the near term as long as the price stays above 1.3665 support levels.
Since the Bank of Japan announced it will reduce its long-dated bond-buying program on Wednesday, the Yen has surged against the U.S. dollar to 111.03. But with experts treating the unexpected change in monetary stance as a sign of growing economy, the Yen is expected to gain even further as traders are already predicting rate hike by the middle of the year.
Also, with the U.S. dollar not very attractive at the moment, the haven status of the Yen and improved global economy fueling growth in the world’s third-largest economy is more likely to aid USDJPY to 109.16 support levels in the coming days. This week, we are bearish on USDJPY with 109.16 as the target.
The rebound in the Euro single currency following the news of German coalition accord and the change in ECB’s monetary stance erased EURNZD’s weekly gains. But as long as 1.7094 holds, our bearish view on this pair stands. One, because of improved in commodity-dependent economies like the New Zealand and the fact that we do not see this pair toppling 1.7481 reached in November 2017.
So we will be treating the bullish pin bar as temporary rebound and wait for further confirmation above or below the 1.6804 levels to affirm our position on EURNZD. Meaning, this week we are neutral on EURNZD but will update on the first sign of confirmation.
Despite the weak Swiss fundamentals, the Swiss Franc sustained its gains against the U.S. dollar last week.
As previously stated, the weak U.S. dollar sentiment is weighing on this pair and expected to continue this week. Therefore, we are bearish on USDCHF this week with 0.9610 as the target.
Naira Continues Downward Trend on Black Market, Trades at N465/$
Naira Extends Decline on Black Market, Exchanges at N465/$
Naira extended its decline against the United States dollar on Friday as scarcity amid devaluation persists.
The local currency lost N2 against the US dollar from N463 it traded on Thursday to N465 on Friday. Its lowest in almost three years.
Similarly, the Naira depreciated by N3 against the British Pound from N562 on Thursday to exchange at N565 on Friday.
While against, the European common currency, the Nigerian Naira lost N1 from N505 it was sold on the back market on Thursday to N506 on Friday.
The local currency has been on a downward trend since the news of foreign exchange unification broke out about two weeks ago. This coupled with 5.54 percent devaluation from N360 official Naira-US Dollar exchange rate to N380, compounded Naira woes.
On the Investors and Exporters’ Forex window, the Naira appreciated by 25 kobo or 0.06 percent against the US dollar to trade at N386.50 on Friday.
Activity on the window, however, improved from $11.96 million traded on Thursday to $25.19 million Friday.
Naira Declines Against Pound, Euro After Devaluation
Naira Plunges Against Euro and Pound After CBN Adjusts Official Exchange Rate
Following the devaluation of the Naira by the Central Bank of Nigeria, the local currency declined against the British Pound and the Euro single currency on the black market.
The Naira lost N4 against the British pound to trade at N562 from the N558 it traded on Wednesday.
This decline continues against European common currency as the Naira lost N1 from N504 exchanged on Wednesday to trade at N505 on Thursday.
On the Investors and Exporters (I&E) Forex window, the Naira lost 0.06 percent or 25 kobo against the US dollar to trade at N386.75 after plunging to as low as N390 during the trading hours.
Activity on the I&E window declined by 86.4 percent from $103.37 million traded previously to $11.96 million as traded are reportedly stay off the market.
The FMDQ Group, who manages the I&E Fx window, on Wednesday adjusted its CBN’s Naira-USD official exchange rate from N361 on Tuesday to N381 despite the central bank maintaining N360/$ on its official website. Indicating that the apex back has officially implemented the N380 but without an official announcement, likely due to backlash — especially after the CBN has repeatedly said the nations have enough reserves to support the economy and blamed speculators and hoarders for the wide exchange of the local currency.
Naira Slides to N463 Against US Dollar on Black Market
Naira Falls Against Dollar, Trades at N463 on Black Market
The Nigerian Naira declined against the United States dollar on the black market following the decision of the Central Bank of Nigeria (CBN) to adjust the nation’s official foreign exchange rate.
The local currency depreciated by N2 against the US dollar from the N461 it exchanged on Wednesday to N463 on Thursday after the news of CBN adjustment became known.
The apex bank had adjusted the official foreign exchange rate from the N360 previously used for the US dollar to N380 due to the recent changes in macro fundamentals of the nation.
This is the Naira lowest exchange rate on the black market in almost three years and highlighted the nation’s precarious position especially when the escalating inflation rate of 12.4 percent is factored in.
On Tuesday, United Capital Plc said given current economic situation that the official exchange of the Naira is expected to slide to N430 to a US dollar by the end of the year.
The pan-African investment banking and financial services group said “On the exchange rate, we believe the odds are in favour of a further naira adjustment, which may take the official rate to N410/$ to N430/$ by year-end.
“However, we believe the Central Bank of Nigeria will continue to defend the value of the local unit for as long as it can.”
It went on to predict that the economy will shrink by 2.69 percent in 2020, down from the 2.3 percent growth predicted earlier in the year.
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