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Forex Weekly Outlook July 18 – 22

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Yuan

The US economy substantiated June’s 287,000 payrolls with a solid consumer spending last week, although inflation remains unchanged at 0.2 percent. There were evidences that an  increase in the cost of living cause by surging energy prices will pressure costs in the second half of the year. But with unemployment claims at 254,000 and industrial production rising from -0.3 percent to 0.6 percent, it is right to say the US economy is reasonably improving.

While it is wrong to downplay global risk, it is also nimble to note that Brexit effect in itself is yet to materialize, but that the financial markets are being driven by speculators, this is one of the reasons why the U.K. monetary policy committee held rates at 0.5 percent to assess the situation up until they believed Brexit would have crystallized.

Last week, the world‘s third largest economy, Japan also hinted at stimulus expansion and it’s plans to aid domestic consumption by weakening the yen to boost exports. The market is currently pricing in that possibility as it can be seen in yen pairs.  This week, EURUSD, AUD, and USDCAD top the list for me.

EURUSD

This particular pair has remained relatively stagnant after three attempts to break 1.1185 resistance level and sustain the upward trend started in October 2015. But with the US labor market rebounded — couple with solid consumer spending that erased all Euro-single currency gains against the US dollar last week. The US dollar may finally be heading to 1.0714 support level underscored three weeks ago.

EURUSDWeekly

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This week I remain bearish on EURUSD as long as 1.1090 resistance level holds.

AUDUSD

In June, Australia added 7,900 jobs down from 19,200 recorded in the previous month. While this is not entirely bad, the continuous gain of Aussie dollar is, especially after Glenn Steven’s comment on the danger of a strong Aussie dollar on the economy. Nevertheless, China’s lackluster economic data further compounded the prospect of the currency after yearly inflation drop to 1.9 percent and trade surplus plunged from 325bn to 311bn. It is only a matter of time before the Aussie economy reflects drop in China’s imports. This I believe will prompt the RBA to cut rates by 25 basis points, if not for anything but to halt surging currency and enhance its exports.

AUDUSDDaily

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The US dollar on the other hand has rebounded tremendously, following weak 38,000 jobs reported in May and has since boosted consumer spending with little to zero Brexit effect. This week I am bearish on Aussie dollar, because one, the upward trend started in May has been contained below 0.7700 price level and currently I don’t think the Aussie dollar is attractive enough to break 0.76690 resistance level.  If the 0.7484 support level (below 20-day moving average) is breached, it should pave way for 0.7379 and sustained break should open up 0.7143.

USDCAD

The Canadian economy is weighed on by weak manufacturing sector, but the Bank of Canada left interest rate unchanged at 0.5 percent on Wednesday, downplaying the effect of Brexit on the economy even though manufacturing sector is yet to pick up.

USDCADDaily

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From the Chart, this pair has failed to break 1.3142 resistance level after four attempts, but established a sort of range between 1.2849 support level and 1.3142. This week, I am bullish on USDCAD with 1.3142 as the target, a sustainable break should open up 1.3387.

 

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

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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Naira Drops N2 on Black Market Even With 11.5% Interest Rate

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Naira Declines on Black Market Despite Lower Interest Rate

Nigerian Naira traded at N467 to a US dollar on the back market on Wednesday despite the Central Bank of Nigeria’s led monetary policy committee lowering the interest rate by 100 basis points after months of saying NO.

The local currency declined by N2 from N465 it exchanged on Tuesday to N467 on Wednesday as investors doubt the new interest rate would be effective given the size of the nation’s economic woes.

Also, the central bank rate adjustment was seen by most as recession validation. Experts and even the apex bank had predicted that except the nation recorded strong growth in the third quarter, Nigeria would slide into recession for the second time in four years.

This was after Nigerian currency was devalued twice to accommodate the nation’s weak foreign reserves in the wake of low oil prices and the drop in demand for the commodity.

Since then, the central bank has injected a total sum of N3.5 trillion into the economy to mitigate the negative impact of COVID-19 on the nation and support gradual improvement in productivity.

However, the decision of the Federal Government to raise electricity tariffs and remove petrol subsidy at a time when 27.1 percent of the working population or 21.8 million people are out of jobs with COVID-19 eroding consumer buying power, further weighed on sentiment and send the wrong message to potential investors and businesses.

Against, the British pounds the Nigerian Naira traded at N600 while it was exchanged at N545 to a European Union common currency.

With labour declaring a nationwide industrial action starting from Monday September 28, Nigeria’s detoriating economic outlook may further plunge the Naira value against global counterparts.

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