- Forex Weekly Outlook June 12-16
The uncertainty in the global financial markets weighed on the foreign exchange outlook amid a series of political uprising across top financial nations. While the diverse policies formulated to aid economic growth towards Central Banks’ target have not been outright effective, the data from the U.S, Euro-area, Japan, etc remain solid, even as commodity dipped across the board.
The euro single currency has gained about 7 percent against the U.S dollar this year, however, the European Central Bank president Mario Draghi on Thursday lower inflation forecast to 1.6 percent through 2019, while revising upward the economic growth rate and maintaining the same size of bond-buying program. This indicates that the apex bank has no exit strategy for QE yet, especially after confirming there is still downside risk to growth—which further creates mixed outlook of the Euro single currency.
Again, while the US dollar has been battered by the US political uncertainty, the recent economic data remained moderately strong. Also, the FBI James Comey testimony did little to nothing to alter the US dollar strength. But the weak job data and slow wage recorded in May are likely to prevent the Federal Open Market Committee from raising rates on Thursday.
Technically, it is unlikely this pair will break the 8 months high recorded at 1.1299 price level after ECB mixed economic outlook of the Euro that prompts sell-off of this pair. Therefore, I will be looking to sell this pair below the 1.1190 levels that double as the 20-day moving average for 1.1117 targets, and expect a sustained break to attract enough sellers to sustain the selloff towards target 2 as shown above.
The Pound Sterling plunged after Theresa May’s Conservative Party failed to secure 326 seats needed to form a majority government on June 8. Pushing risks exposure and market uncertainty to a new height after economic data showed consumer spending that contributes 70 percent of the economy and housing prices declined.
On the other hand, the Japanese Yen continued to gain from strong economic growth and relatively stable politics. Even though, the Bank of Japan governor Haruhiko Kuroda said Japan is far from meeting its inflation target of 2 percent, the haven currency is like to continue to gain against the Pound ahead of Brexit talk and U.K political uncertainty.
Since I first mentioned this pair sell potential last week, it has dropped 187 pips, however, that is below our first target of 134.90. Therefore, this week I remained bearish on this pair for two reasons: One, the last week candlestick closed below the 20-day moving average, and further validated the pound sell-off. Two, the politics in the U.K and poor fundamental will plunge long term investment that will gradually hurt earnings and job creation. Eventually, weak business confidence and high consumer prices will hurt domestic demand and the Pound strengths.
Accordingly, I will be looking to add to my sell order below the ascending channel at 139.33 for 134.90 take profit this week.
Please note that after our first target was hit on USDJPY last week. The pair rebounded to 110 price levels. Therefore, this week I will be standing aside to better monitor price action.
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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