Pound Seen Weakening against the Rand as Technical Picture Darkens
- GBP/ZAR has just completed a bearish pattern
- The pair is biased to more downside
Image © Comugnero Silvana, Adobe Stock
Sterling weakened against the Rand at the beginning of the new week as the technical picture on the charts darkened further, and the British currency is likely to remain under pressure in coming days.
The Pound-to-Rand rate has completed a long-term abcd pattern, highlighted on the weekly chart below, and now more downside is likely to follow.
The pattern started at the beginning of 2017 and has been rising in a 3-wave zig-zag ever since then. Now that the first and third legs (a-b and c-d) are of a similar length and the market has declined from the peak at point 'd' we expect a bias towards more downside.
The next target lower is probably the 50-week MA just below 17.60. Confirmation would come from a break below the 18.26 lows.
The daily chart above shows a clearer view of the recent price action. The 18.30s appear to be a key line in the sand for the pair where declines are likely to encounter a zone of support or floor. This is why we would ideally wish to see a break below the 18.26 low for confirmation the zone has been fully penetrated and the exchange rate 'has come out the other side'.
What to Watch this Week
Overall the fundamental backdrop remains unfavourable for ZAR.
The MTBPS was negative for the Rand as it forecast the budget deficit widening. Moody's reaction was that the MTBPS was ' credit negative'.
SA's credit rating remains just one notch above junk, however, analysts don't seem to see a real risk it will be downgraded any time soon.
The SA Rand is undervalued according to estimates by Standard Bank but this is due to a "political and policy uncertainty" premium weighing - risks, moreover, which are unlikely to suddenly vanish overnight.
It is a similar story to that of Sterling, in this sense, because the Pound is also undervalued according to many analysts, because of similar political risk associated with the Brexit divorce from the EU.
The main economic data release in the week ahead for the Rand is probably the Q3 labour force survey on Tuesday at 10.30 GMT.
A slight rise in unemployed people is expected because of the slowdown in Q3 growth. The previous number was 6.1m in Q2 and a rate of 27.2%. Bloomberg consensus sees this rising to 27.4% in Q3. Standard Bank expects the rate to remain steady in 2018 and then slowly decline in 2019. Higher unemployment is not likely to be positive for the Rand.
The Balance of trade is out at 13.00 on Wednesday and is forecast to show a surplus of 5bn in September after 8.8bn registered in August, however, the data can be volatile and it's only over longer-term its trends become clearer. Surpluses are generally positive for currencies.
ABSA Manufacturing PMI is out at 10.00 on Thursday. The gauge continues to be stuck in contraction mode under 50, with September showing a 43.5 result. A further fall into contraction territory would not help the Rand.
Advertisement
Bank-beating GBP/ZAR exchange rates: Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here