Forex Weekly Outlook June 13 – 17
The dollar rallied again last week after crude oil prices plunged and commodity backed currencies followed suit, but the uncertainties surrounding global market ahead of Federal Reserve meeting this week and Britain’s referendum later in the month continues.
Last week, Fed Chair Janet Yellen said interest rate hikes are coming but gave no clue as to when, while explaining that the economy has registered considerable growth towards Fed’s goals of maximum employment and price stability, she said a shift in the economic outlook will necessitate a corresponding shift in Fed’s policy. Also the US unemployment claims improved from 268,000 to 264,000 following a six-year low nonfarm payrolls report in May. Given the current market condition, I will be trading EURUSD, AUDJPY and last week pairs.
The 19-nation currency, Euro is enmeshed in brexit and as such vulnerable, even with 0.6 percent revised economic growth in the first quarter. The currency remains unattractive as investors continued to seek less volatile currency with predictable direction. On the other hand, the US dollar is moderately stable with rate hike off the table, and I believe Fed’s positive assertion of the economy has renewed interest in the US dollar compared to the Euro.
Again, the EURUSD chart shows the pair has been unable to breakout of the channel started in October, and failed again six weeks ago after reaching 1.1614. Last week’s candlestick further confirmed bearish continuation by closing as a dark cloud cover into previous bullish candlestick. This week, as long as price remains below 1.1338, I am bearish on EURUSD with 1.1090 as the target.
US retail sales, building permits and inflation reports are due later in the week.
Since CPI data showed, Australian inflation fell 0.2 percent in the first quarter of the year, the Aussie dollar has lost about 827 pips. Currently, the commodity-backed currency is being weighed upon by drop in commodity prices and heightened global risks. With all the positive economic data, ranging from the fastest growth rate in four years to low unemployment rate, the currency remains unattractive as investors seem to doubt the viability of Governor Glenn Stevens claims regarding the economic outlook, especially with the fact that Australia depend on struggling China for exports and most of her manufacturing.
In fact, an investment manager who oversees the equivalent of about $11 billion in fixed income assets at BTIM in Sydney, Vima Gor published an odd analysis on Thursday, saying the Australian dollar is at far more risk than most people think, and predicted 40 cents.
While Japanese yen remain attractive and projected to be even more in demand as investors scramble for safe haven assets to curtail possible shortfall of brexit as markets await referendum result.
From the chart, this pair has been trading in channel since October 2014 and lost a total of 2,421 pips, but after RBA cut interest rate by 25 basis points in April, the pair has failed to sustain price above 80.82 resistance level. Another confirmation is the last two rejection candlesticks (shooting stars) confirming rejection of higher prices, this week I am bearish on AUDJPY provided price remains below 80.82 resistance level while keeping an eye on Australia’s unemployment report and BOJ monetary policy statement due on Thursday. My target will be 75.83.
GBPCAD plunged 544 pips last week amid brexit, and hits our 1.8480 price target. But this week 1.8117 support level is our temporary setback and with Canadian dollar more likely to retreat with oil prices. I will be cautious and look for a sell below 1.8105 (2016 low), while targeting 1.7755.
GBPCHF lost over 505 pips last week after closing the Monday gap during Asian trading session on Tuesday. But with our target one and two met (496 pips), I will be careful trading this pair this week for the simple fact that both paired currencies are prone to brexit’s effect. That being said, I am bearish on GBPCHF provided 1.3926 resistance level holds, with 1.3507 as target.
USDJPY last week view is the same this week, “its failure to break 111.65 resistance level after three attempts, and eventually breaching 107.47 support level on Friday, suggest that the continuation of the downward trend has started and as long as investors are yet to know the fate of EU and UK regarding the referendum, and the US June rate hike decision off the table. The Japanese yen remain attractive, especially with G7 agreement hindering BOJ from intervening in its gains.”
This week, as long as 107.47 resistance level holds, I am bearish on USDJPY with 105.21 as the first target and 102.17 second target.
Bureau De Change Operators Begs CBN to Approve Electronic Forex Trading
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.”
Naira to Dollar Exchange Rate in 2020
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.
Naira Drops N2 on Black Market Even With 11.5% Interest Rate
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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