Wednesday 10 April 2019


By Lukman Otunuga, FXTM Research Analyst
A sense of caution lingered across financial markets after the International Monetary Fund (IMF) cut its global economic growth projection for 2019, to 3.3% from 3.5%.

Risks revolving around US-China trade talks and Brexit have played a leading role in the IMF’s decision to downgrade growth forecasts to their lowest rate since the financial crisis of 2008. Growth forecasts for sub-Saharan Africa this year were also trimmed, to 3.5% from the 3.8% set last October.

Interestingly, the IMF upgraded Nigeria’s growth forecast this year, to 2.1% from the 2.0% forecast made in January. With the nation on a mission to diversify away from Oil reliance and macroeconomic conditions stabilizing, the outlook remains encouraging. With no major economic reports expected from Nigeria this week, the Naira and local stock markets may be influenced by external drivers.

A busy day ahead for the Dollar
The US Dollar may react to some near-term catalysts in the form of the pending March US inflation print, the minutes from last month’s surprisingly dovish Fed meeting that are scheduled for release later today, and Fed Chair Jerome Powell’s speeches over the next three days.

Should any of these events support expectations of a Fed rate cut, with the Fed Funds Futures already expecting a 55 percent chance of a cut by December, that could see the Dollar Index (DXY) sink back towards 96.80. However, any drop would likely be mitigated by the worsening global outlook, which is offering support for the Greenback.

Euro awaits ECB decision…
EURUSD bounced off the 1.12 support level in the lead up to the European Central Bank’s latest monetary policy decision that is due on Wednesday.

Mario Draghi and his fellow policymakers are expected to sit on their hands this month, with little room to maneuver amid significant headwinds. While political tensions in France and Brexit uncertainties are beyond the central bank’s control, these factors have been highlighted by the IMF as putting downward pressure on growth, leaving the ECB to bide for time and watch how these risks manifest themselves in the real economy.

Taking a look at the technical picture, the EURUSD remains in a bearish trend on the weekly charts. There have been consistently lower lows and lower highs while the Moving Average Convergence / Divergence (MACD) trades to the downside. A solid breakdown below 1.120 has the potential to encourage a move lower towards 1.113 and 1.100, respectively. If 1.120 proves to be a reliable support, the technical bounce is seen taking prices back towards 1.135.

Pound complacent even as Brexit summit looms
Pound traders have narrowed the trading range for GBPUSD to between 1.30 and 1.31, even as markets remain on tenterhooks awaiting the next developments surrounding Brexit. The EU is set to hold an emergency Brexit summit on Wednesday, amid expectations that the UK will be told to delay its exit by up to a year.

It remains to be seen whether such a demand is palatable for UK lawmakers and Prime Minister Theresa May, whose request for a short extension to the June 30 was rejected. While a longer extension may avoid stringing markets along with a series of cliff-edge dates, it still doesn’t remove the overall uncertainty as to how and when the UK will exit from the European Union. This implies that the dark clouds of Brexit won’t be clearing up anytime soon, which should continue weighing on the Pound throughout the rest of 2019.

Focusing on the technical picture, the GBPUSD is struggling to keep above 1.3000 on the weekly timeframe. A decisive breakdown and weekly close below this point are likely to open the gates towards 1.2800 in the short to medium term.

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