The South African Rand is one of Emerging Market’s highest beta currencies – Consequently, it will tend to underperform when there are bouts of risk aversion and outperform in times of optimism. This was recently exhibited over the past few weeks as stresses in European sovereigns roiled market confidence and then quickly came back as 6 of the world’s central banks coordinated to lower USD swap rates by 50bps & extended the swap lines until Feb. 2013. The next 48-hours could go a long way to either verify or negate the recent buoyancy in the markets as we see the ECB’s interest rate announcement and beginning of the EU summit tomorrow and concluding on Friday. Ultimately, I believe expectations for this summit are just too high and thus likely to disappoint (this outcome could weigh on the ZAR). Furthermore, the fundamental backdrop in South Africa is questionable at best – 3Q GDP was +1.4% YoY (consensus +1.8%), Oct. Trade Balance shocked at ZAR -9.6B vs. expected ZAR -2.0B and October Retail Sales was +0.6% from a downwardly revised 1.5% (was +1.8% initially) MoM. That said, tomorrow two other key data points out of South Africa: 3Q Current Account (exp. -3.7% of GDP, Balance: ZAR -110.9B) and October Manufacturing Production (con. 0.5% MoM) and I believe both are at risk to disappoint.
Now let’s turn to the technicals (see chart below):
Now let’s turn to the technicals (see chart below):
- Retesting prior trendline resistance (now support) over the past few days & has held
- Elliot Wave count suggests wave-4 could be nearing completion with a final wave-5 push higher
- Finding support into daily Ichimoku Cloud top around 7.9790
- Has so far maintained above the 78.6% retracement near 7.9660/65
- Approaching key daily RSI 40/45 level, which has proven supportive in the past
- Daily RSI & price could be forming a Positive Reversal – Price makes higher high & higher low and RSI makes lower high & lower low (bullish)
- Lastly, 8.0000 is a key psychological/option related level