With the U.S. equity and treasury markets closed today for Presidents day, the Eurogroup conference has taken center stage. The meeting is regarding a second potential Greek bailout package of around €130B and the press conference was scheduled to begin around 23:00 CET today – As if we should be shocked, all is still quiet on the EU front and my guess is we’ll be waiting…for a while…until we receive…further details. At this point, if we hear that the decision is pushed back to tomorrow or even the end of the week really wouldn’t even be all the surprising. Even if they come to a resolution, the market has had umpteen weeks to price this in and while I will admit a short squeeze is most likely inevitable, it will most likely be faded rather aggressively by ‘real money’ players as this is not a long-term solution (in my opinion). Consequently, I would think this should trigger risk aversion flows over the coming sessions and the South African Rand is one of Emerging Market’s highest beta currencies, thus it will tend to underperform when there are bouts of selling. Furthermore, South Africa sees a few key data announcements throughout the rest of the week: Tuesday Dec. Leading Indicators (prior 132.2), Wednesday Jan. CPI (exp. 6.2% YoY), Thursday Jan. PPI (con. 9.5% YoY) and while I do think the risk to these announcements are to the upside, I believe the EU drama will dwarf these announcements. Additionally, the technical backdrop still suggests any further ZAR strength over the coming sessions should be faded:
- Elliot Wave count wave-5 is underway
- Daily RSI broke above corresponding trendline resistance prior to price
- Trendline resistance from the November high comes in around 7.9440
- Keep an eye on the key 40 level in RSI, which if it holds could lead to a further rebound
- Key horizontal pivot near 7.95/9700 may prove resistive in the short-term
- Nearing support around the 13-day sma around 7.6585
- Horizontal support from the August 2011 high remains between 7.45/5000
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