Risk took it on the chin today after ECB President Draghi stated that they (ECB) had no plans to expand government bond purchases, regardless of the EU summit outcome tomorrow. Moreover, he also dismissed the possibility that the ECB would lend to the IMF. Taken together, this essentially squashes all hopes of meaningful EU summit outcome irrespective of the ‘promises’ of treaty changes and tighter fiscal controls. Consequently, this saw risk aversion rear its ugly head once again – Equities lower, commodities lower, treasury yields lower and most importantly for the land of FX, the USD stronger. This saw the high beta currencies suffer the greatest losses relative to the buck, with the South African Rand being the largest underperformer losing -3.16% on the day. While much of this can be attributed to the ‘risk’ trade, the fundamental data out of South Africa today added fuel to the fire as it continued to worsen (as I suspected yesterday) – 3Q Current Account was -3.8% & ZAR -114.6B (exp. -3.7% of GDP, Balance: ZAR -110.9B) and October Manufacturing Production was -3.6% vs. con. 0.5% MoM.
That said, USD/ZAR surged higher today and wiped out 50% of the decline over the past two weeks. The technical backdrop highlighted yesterday all pointed to further upside – Retesting prior trendline resistance, Elliot Wave count suggests wave-4 nearing completion, supported into daily Ichimoku Cloud top, maintained above the 78.6% retracement, bounced ahead of the key daily RSI 40/45 level, Positive Reversal is now confirmed. With the technicals now realigning with the fundamentals, a test of the November 8.6000 high could ensue over the next few weeks.
That said, USD/ZAR surged higher today and wiped out 50% of the decline over the past two weeks. The technical backdrop highlighted yesterday all pointed to further upside – Retesting prior trendline resistance, Elliot Wave count suggests wave-4 nearing completion, supported into daily Ichimoku Cloud top, maintained above the 78.6% retracement, bounced ahead of the key daily RSI 40/45 level, Positive Reversal is now confirmed. With the technicals now realigning with the fundamentals, a test of the November 8.6000 high could ensue over the next few weeks.