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Forex Weekly Outlook November 7-11

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Forex Weekly Outlook November 7-11
  • Forex Weekly Outlook November 7-11

The US dollar continued to drop ahead of the US presidential election, even with a “positive” payroll report, the currency dip further. The labor market added 161,000 jobs in October, below the 174,000 expected by economists, but strong enough to validate Fed’s rate hike decision come December. This is because, the surge in wages to 2.8 percent (year-on-year) confirmed the optimum of the job market and the struggle to keep employees as employers compete for limited skilled-workers.

Also, the unemployment rate improved to 4.9 percent in October, despite the fact that the 12.1 percent of the “unemployed age group” voluntarily quit their jobs with the confidence of securing a high paying job. While, the participation rate that contributed to the 5 percent unemployment rate recorded in September declined, boosting the outlook of the job market.

However, there are discrepancies in the recent data that could change Fed’s growth approach and sustenance. For instance, productivity in the services sector fell to 54.8 in October from 57.1 percent in September, while business activity plunged to 57.7 in the same month. Even though, it still reflects expansion, stalling growth may begin to worry policy makers and prompt them to adopt what Fed Chair Yellen Janet called a “high pressure economy” during her last month speech — by going above her target for both employment and inflation in order to attract more investment and hiring to lower unemployment even further.

Nevertheless, the November 8 presidential election could change the entire global economic outlook and compel investors and businesses to adopt new growth model as they strive to comprehend the new government policy from the world largest economy. This week, high volatility is expected across board, but a Clinton presidency should stabilize the markets and reinforce the likelihood of the Fed’s raising rates in December and vice versa.

In the UK, the pound climbed on Thursday following the Bank of England (BoE) decision to leave interest rate unchanged at 0.25 percent, and a court ruling stopping the Prime Minister Theresa May from triggering article 50 of the Britain’s exit from the European Union without the U.K. parliamentary approval. While, the pound might extend its gains in the coming days as investors scramble to cover their short positions, the downward pressure is likely to persist due to economic uncertainty surrounding Brexit.

Accordingly, depreciation of the pound is expected to boost exports and reduce imports as UK products become affordable for overseas buyers and Britons choose to purchase locally made products, rather than expensive imported alternatives. Therefore, trade balance deficit is expected to exceed current level by 2017.

While, the U.K. fundamental point to growing economy with solid manufacturing sector (54.3), resilience services sector (54.5) and economic growth rate of 0.5 percent in the third quarter, the unexpected progress post-Brexit could be affected by the uncertainty in the UK economic outlook, and worsen if the country had hard-Brexit – ‘leaving the European Union without access to the single largest market of approximately 500 million consumers.’

“This is because EU deals are the biggest determinant of the UK economic outlook going forward.”

In Japan, the Bank of Japan held its annual 80 trillion yen ($764 billion) bond-buying program unchanged, while delaying the timing for reaching its 2 percent inflation target. Despite, inflation falling 0.5 percent in September — for a seven straight month and consumer spending declining 1.9 percent, the apex bank remained resolute in its current monetary policy (controlling short- and long-term rates and its asset-purchase programs).

According to the Bank of Japan Governor, Haruhiko Kuroda, the institution didn’t take additional monetary measures because the outcome of the US election will not just affect the U.S. economy but would have important implications on global economy, hence, the apex bank is keenly monitoring the outcome in relation to the global economic reaction to these developments.

In lieu of global developments ahead of US presidential election this week, the yen, will continue its gains against the US dollar and other perceived high-risk currencies as investors increase their holdings of haven assets in an effort to avert Brexit similar occurrence.  This week, AUDJPY and USDJPY top my list.

AUDJPY

On July 4th, I mentioned the significance of AUDJPY descending channel here, ever since, this pair has traded within the channel. Last week, AUDJPY failed to sustain its gains above 80.82 resistance, closing once again below the established channel as a bearish pin bar — this further validated the significance of the descending channel to the economic outlook of the pair.

Forex Weekly Outlook November 7-11

Another reason why this pair holds potential, is the increasing global uncertainty and risk ahead of the U.S. presidential election. Naturally, investors are risk averse, and gravitated towards haven assets to avert possible loss in case there is disparity in the outcome of the election and market expectation. In this case, the yen is a better haven asset and likely to attract more buyers this week.

This week, I am bearish on the AUDJPY as long as price remains below 80.82 resistance, I will be looking to sell below last week close of 79.08 for 76.25 as the target.

USDJPY

Last week, the US dollar lost 249 pips against the yen to close at 103.03, the lowest in a month. While, the US economy is vibrant, the uncertainty surrounding the election continued to weigh on the currency and has plunged it against all the majors. This week, I am bearish on USDJPY, one, because of the possibility of the pair to drop further as investors increase their holding of Japanese yen, while assessing the U.S. election result.

Forex Weekly Outlook November 7-11

This week, I will be looking to sell around 102.68, below 20-day moving averages, while targeting 101.47 first, with 100 as the second target. But a Clinton presidency will void this analysis and solidify the US bullish run.

 

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 long experience in the global financial market.

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Naira Declines Against Pound, Euro After Devaluation

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Naira Declines against pound

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.

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Naira Slides to N463 Against US Dollar on Black Market

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Naira

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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Naira-USD Exchange Rate to Hit N430 – Report

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dollar

Naira Foreign Exchange Rate to US Dollar to Decline to N430 in 2020

United Capital Plc, a pan-African investment banking and financial services group, on Tuesday said the nation’s official foreign exchange rate may decline to N430 in 2020.

This was after the Central Bank of Nigeria adjusted the Naira exchange rate to a US dollar from N360 to N380 to better accommodate the changes in macroeconomic fundamentals in recent months.

In the company’s economic projection for the second half of the year, titled ‘Nigeria H2 2020 outlook report: Up in the air,’ it 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.”

The report stated that the nation’s growth rate slowed to 1.87 percent in the first quarter of the year, partially reflecting the impacts of COVID-19.

It explained that despite the series of stimulus pumped into the economy by the Federal Government, the second quarter Gross Domestic Product (GDP) is expected to contract given the vast impact of COVID-19 on businesses and households.

It added, “However, the palliatives and reforms that are being announced may reduce the probability of sliding into a deep recession or quicken recovery once the incidence rate of the pandemic begins to drop and the economy is fully re-opened.

“Overall, the Nigerian economy may enter a technical recession by Q3 2020 (after two consecutive quarters of contraction in Q2 and Q3 2020), with a chance of early recovery by Q4 2020 or Q1 2021.”

The company, therefore, lowered its 2020 real GDP growth projection from 2.3 percent to -2.69 percent.

“The biggest downside risk to the above projections remains the possibility of a second round of lockdown, especially if the virus continues to spread rapidly,” it added.

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