By Lukman Otunuga, Research Analyst at FXTM,

The recent depreciation in oil prices presents significant risks to oil export-dependent nations, with Nigeria falling into the category.

Depressed oil prices will not only shave government revenues but also the nation’s ability to implement its 2019 budget which pegged oil prices at $60 per barrel. If the Central Bank of Nigeria finds itself in a difficult position to defend the Naira amid falling external reserves, inflationary pressures are likely to make a return as the Naira weakens. The near-term outlook for the economy paints a gloomy picture amid weak oil prices, rising inflationary pressures and possible depreciation of the Naira.

However, with GDP potentially bolstered by increased government spending ahead of the presidential elections next year and diversification in play, there is still some light at the end of the tunnel.

Market sentiment hangs on G20 Summit

Conflicting signals over the direction of trade between the world’s two largest economies are poised to place investors on an emotional rollercoaster ride ahead of this weekend’s G20 meeting.

It was only on Monday US President Donald Trump stated that he was “highly unlikely” to suspend planned increases to existing tariffs on Chinese goods. One day later, White House economic adviser Larry Kudlow expressed optimism that a trade deal between the United States and China was still a possibility. With Trump’s remarks clashing head-on with Kudlow’s positive comments, the US administration is clearly adopting a classical good cop, bad cop strategy leading up to trade talks. Will this method work with China? This is the question on the mind of many market players.

In a perfect world, the best-case scenario for financial markets will be for both sides to find a middle ground on trade and secure a breakthrough deal. However, this outcome is highly unlikely with investors closely observing for any display of co-operation or interest in further negotiations to ease trade tensions. The worst-case scenario for markets will be if talks descend into disagreements on trade which may fuel fears over a trade war between the United States and China becoming reality.

Dollar remains the king of the hill

Dollar strength is set to remain a dominant market theme this week thanks to renewed trade tensions and expectation of higher US interest rates.

Buying sentiment towards the Dollar brightened yesterday following hawkish remarks from Fed Vice Chair Richard Clarida while uncertainty over trade fueled upside gains. Investors will be keeping a close eye on the pending second estimate of third-quarter GDP growth figures to gauge the health of the US economy. There will be a special focus on Fed Chair Jerome Powell’s speech, which will most likely be closely scrutinized for clues on how many more times the Fed plans to raise rates in 2019. If Powell strikes a hawkish note, the Dollar Index has the potential to rally towards 98.00.

Another painful day for the British Pound?

The story defining the British Pound’s painful depreciation continues to revolve around Brexit-related uncertainty and political drama in Westminster.

Matters could be worsened for the Pound if today’s UK Treasury’s Brexit forecast paints a very gloomy outlook for the UK economy post Brexit. Some parts of the Treasury report have already been leaked by the Telegraph this morning with the UK seen to be £150bn worse off under a no-deal. With GDP also projected to be 7.6% lower under a no-deal scenario over a 15-year period, things could get very messy to the run-up of the official Brexit deadline.

In regards to the technical picture, the GBPUSD is firmly bearish on the daily charts with bears eyeing the 1.2700 level.

Commodity spotlight – Gold

Gold was treated without mercy by an aggressively appreciating Dollar yesterday with prices sliding towards the $1,212 level.

The heavily bearish price action witnessed on the yellow metal confirms how its trajectory remains heavily influenced by the Dollar’s performance and US rate hike expectations. With the Dollar likely to remain supported by safe-haven flows and expectations of a rate hike in December, Gold is likely to witness further downside. Sustained weakness below $1,214 could inspire a move back towards the psychological $1,200 level.