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Forex Weekly Outlook September 5 – 9

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The U.S dollar was rattled last week by a series of weak economic data released towards the end of the week, the nonfarm payrolls report came out less than expected at 151,000 in August from 255,000 recorded in July, and this couple with weak productivity from the manufacturing sector (49.4) alerted the markets to the likelihood of the Federal Reserve relinquishing on its rate decision this year. This is because during the Jackson Hole speech, the Fed Chair Janet Yellen said if the economy continues to improve and productivity pick up that the Federal Open Market Committee will look into tightening interest rates, otherwise the FOMC will continue to monitor growth and acted only when necessary.

Nevertheless, the US trade deficit narrowed 11.6 percent in June to $39.47 billion in July, while imports dropped 0.8 percent and exports rose 1.9 percent. The improvement in exports was largely due to increased overseas orders of foods, feeds and beverages — especially soybeans. Meaning, it’s more likely to reverse going forward, but it will support third quarter overall growth.

While, some have argued that it is too early to deduce the Fed stance, the average hourly earnings says otherwise, for instance with unemployment near all-time low, average earnings shouldn’t be declining even if the unemployment rate (4.9%) drop. This for me signals the economy is recovering, not recovered yet. That I think the FOMC will like to see through, before tightening monetary policy.

The Japanese economy is probably the most affected by the weak US job report and here is why, the data released on Tuesday showed that household earnings increased and retail sales improved significantly amid moderate unemployment rate, although industrial output (49.5) and capital spending (3.1) are still weak due to weak oversea orders — the whole economy remained vibrant. This improvement is expected to  rekindle the Japanese yen attractiveness as a haven asset, especially now that the weak nonfarm payrolls has substantially dent the odds of the Fed’s raising rates this year.

However, the increase in demand for the Japanese yen will worsen industrial output and exports, and prompts the Bank of Japan Governor Haruhiko Kuroda to reassess its limited monetary policy if manufacturing sector and sustained job creation are priorities.

In the UK, the economy has rebounded from Brexit pitfall, with business confidence on the rise. The purchasing manager index that hit record low amid Brexit growing concerns in July has gained back all the lost ground as companies have started hiring and overseas orders surged. This increase in shipment was as a result of the weak pound. So it is nimble to note that the fall in the value of the pound is also pushing up manufacturer’s cost of production and inflation as Britons needs more money to buy imported goods.

In the long term, this is a bit mixed, one, because market sentiment is volatile and this could be an overshoot upwards PMIs that needs to be cautiously watch. Two, if consumer prices start rising now, further stimulus from the Bank of England may not crystallize. On this note, EURGBP, USDCAD and GBPCHF top my list this week.

EURGBP

Since June 24, speculators have substantially driven this pair to over 3-year high. But the UK economy remains unperturbed by the negative business sentiment the Brexit decision generated and has gained 349 pips since August 16 when the first complete post-Brexit economic report was released. Another reason why I think EURGBP is a good sell, is the fact that the U.K positive economic data and the sentiment generate by the releases will revamp its currency’s outlook, while euro-area weak economic data will continue to weigh on the single currency for now.

EURGBPDaily

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If EURGBP sustained the breach of 0.8391 support, this will likely attract sellers’ interest this week and open up 0.8240 support level, our first target this week. As long as the price remained below 0.8448 resistance I am bearish on this pair.

USDCAD

After the Organization of the Petroleum Exporting Countries announced its willingness to discuss steps on how to cap production at its meeting this month in Algeria, global oil prices jumped. So did currencies of commodity dependent economies. The Canadian dollar consolidated for two days with a double gravestone doji before finally gaining back 50 percent of what it has lost since the odds of the Fed’s raising rates bolster the dollar.

USDCADDaily

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This week, as long as price remains below 1.3033 resistance I am bearish on this pair with 1.2849 as the target, a sustained break of 1.2849 should give us 1.2674 provided OPEC go through with their promise and Fed’s position rates settled. forex is maintained

GBPCHF

The Swiss Franc like Euro single currency has lost 639 against since August 16th as explained above. Last week, Switzerland’s retail sales fell 2.2 percent in July after previously plunging 3.5 percent in June.

GBPCHFDaily

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A sustained break of 1.3034 resistance will likely open up 1.3332, but if the inflation and GDP report due this week came out better than expected. This pair will pull back. Until then I am bullish on GBPCHF with 1.3332 as the target. forex target is defined

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

Zenith Bank Joins Other Banks to Cap International Spend Limit at $100/Month

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Zenith Bank Caps International Spend Limit at $100 Per Month

Following persistent forex scarcity impacting the nation, Zenith Bank has joined other deposit money banks capping international spend limits.

In an e-mail to customers, the lender said “Please be informed that the monthly international spend limit for your Zenith Bank Naira Card has been reviewed to US$100 while the use of Zenith Bank Naira cards for international Automated Teller Machine cash withdrawals is still temporarily suspended.’

It added that this review is in response to change in Nigeria’s macroeconomic factors.

The bank, however, advised those with higher international spend requirements than the US$100 stipulated above to visit any Zenith branch and request a foreign currency debit or prepaid card “which are available in US Dollar, Pounds and Euro variants.”

This is coming a few weeks after UBA, GTBank, First Bank and others capped their international spend limits to $100 for similar reasons. However, Zenith’s decision was after the Central Bank of Nigeria commenced forex sale to the Bureau De Change Operators across the country.

 

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Nigeria’s Foreign Exchange Inflows Decline by 43.2% in May

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CBN Says Foreign Exchange Inflows Decline to $5.52bn in May

The total foreign exchange inflows into Nigeria in the month of May declined by 43.2 percent, according to the Central Bank of Nigeria’s report.

The report said the COVID-19 pandemic negatively impacted capital inflows during the month as the total foreign exchange inflows dropped to $5.52 billion.

It said “Inflows through the CBN and autonomous sources were negatively impacted.

“On a month-on-month basis, foreign exchange flows into the economy declined to $5.52bn in May 2020.

“The decline in inflow, relative to the level in April 2020, was attributed to the lower receipts from oil sources, which fell sharply by 55.2 per cent because of the continued fragility in global crude oil demand.

“Inflow through autonomous sources, particularly invisible purchases, declined by 7.0 per cent to $3.51bn, relative to the preceding month, while there was a 66.2 per cent fall in inflow through the CBN, which stood at $2.01bn in May 2020.”

However, foreign exchange outflows from the country declined by 23.9 percent to $2.50 billion in the month. Likely because of forex scarcity and the central bank forex rate adjustments that curbed outflows by foreign investors.

A break down of the report showed that outflow through the apex bank declined by 30.9 percent to $2.19 billion, below what was recorded in April.

But outflow through autonomous sources, mainly imports and Invisibles, rose by 152.2 percent to $0.32 billion. Higher than the amount reported for the month of April.

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ECOWAS Slows Down on Eco Launch, Says Now Adopting Gradual Approach

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ECOWAS Halts Eco Launch, Says New Launching Date Will Be Announced

The Economic Community of West African States (ECOWAS) on Tuesday said it has postponed the planned launch for Eco, its single currency.

In a communiqué issued at the end of the 57th Summit of the Heads of State and Government of ECOWAS held on Tuesday, member states agreed to adopt a gradual approach for the launching of Eco given changes in economic fundamentals of member states.

They said a new road map for the launching would be announced and that member states are exempted from compliance with the body’s convergence criteria in 2020. Again, suggesting the negative impacts of COVID-19 on member states have forced the body to adopt a new launching approach, especially with most member states not meeting convergence criteria before the pandemic.

The communique read, “Member states are to be exempted from compliance with the convergence criteria in 2020, while also developing a new macroeconomic convergence and stability pact among the ECOWAS member states.”

President Muhammadu Buhari, who attended the summit, warned that the whole project could face serious jeopardy unless member states complied with agreed processes of attaining the body’s collective goal.

Buhari also expressed concern over Francophone countries within the West African Economic and Monetary Union adopting Eco as a replacement for CFA Franc ahead of the rest of member states.

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