Nigeria, EM currencies weaken as dollar surges while investors await ECB rate decision

Emerging market currencies, which were exposed to downside risks this week after the U.S 10-year Treasury bond yield punched above 3 percent, boosted the dollar weeklong to Thursday. This is just as the Euro softens ahead of ECB decision.

With the dollar likely to remain supported by speculation of higher U.S interest rates, EM currencies, including the naira, could be exposed to further losses, according to FXTM Research analysts.

They noted that the Nigeria naira slightly felt the heat, weakening against the dollar at the investor’s window and parallel market at N363 as of Thursday, April 26, 2018.

There is equally a growing air of anticipation across financial markets ahead of the European Central Bank rate decision and press conference later in the day from Mario Draghi, president of the European Central Bank.

Amid trade tensions across the globe and signs of a slowdown in the Eurozone, most economists expect the ECB to keep rates on hold. Draghi had recently warned in Washington that rising protectionism might already be hurting business and consumer sentiment.

“The main focus and potential action by investors will probably revolve around Draghi’s post-meeting press conference,” they said.

“While Draghi is likely to reiterate the message he delivered during March’s policy meeting when the ECB dropped its easing bias, this could be presented with dovish touch.

“With Eurozone economic data disappointing in recent months, inflation still below the golden 2 percent target and lingering trade tensions weighing on sentiment, doves could steal the show today, Thursday,” they highlighted.

According to them, the key question on the mind of many investors is whether the soft economic data during Q1 will result in the ECB delaying the QE exit decision.

“With speculation rising over the ECB pushing back the taper timeline, it will be interesting to hear Mario Draghi’s thoughts on this topic during his press conference. The Euro remains at risk of extending losses against the Dollar if Draghi strikes a cautious tone.”

They forecast that it is certainly shaping up to be a bearish trading week for the Euro, which has tumbled to levels not seen since the 1 March – below 1.2160.

“Focusing on the technical picture, the EUR/USD is at risk of tumbling lower, if bears are able to maintain control below the 1.2200 level. Previous support around 1.2200 could transform into a dynamic resistance that invites a decline towards 1.2150 and 1.2090.

On commodity, WTI Crude appreciated on Thursday morning, as market expectations over the United States re-imposing sanctions against Iran and a drop in Venezuela’s oil production fuelled fears of supply shortages.

Increasingly, oil bulls tend to remain heavily reliant on geopolitical tensions to sustain the current rally. While further upside could be on the cards in the near term amid OPEC optimism, gains are likely to be capped down the road by soaring production from U.S Shale.

“Taking a look at the technical picture, WTI Crude continues to fulfill the prerequisites of a bullish trend as there have been consistently higher highs and higher lows. WTI has the potential to challenge $70 if prices are able to keep above $67.50. Alternatively, if bulls become exhausted and fail to defend $67.50, the next level of interest will be at $66.00,” the FXTM analysts noted.