Pound vs. South African Rand Week Ahead Forecast: New Uptrend Tipped to Extend to 2019 Highs
Image © Pound Sterling Live
- GBP/ZAR in new short-term uptrend
- Likely to extend after major resistance surpassed
- Rand to be moved by global risk appetite
The Pound-to-Rand exchange rate is trading at around 18.61 at the start of the new trading week, up 1.40% already so far this week, and studies of the charts suggest the pair will probably continue higher in the short-term.
The 4hr chart - used to determine the short-term outlook which includes the coming week or next 5 days - shows the pair rising up within a range.
GBP/ZAR has now completed more than two sets of higher highs and higher lows which is indicative of the start of a new uptrend.
Given the old adage that ‘the trend is your friend’ and therefore more likely to continue than reverse, the short-term uptrend is forecast to continue.
This is even more so the case now the pair has broken above a tough resistance zone created by a cluster of moving averages in the lower 18s - as it means the way is now open to more upside.
A break above 18.70 should lead to a move up to the range - and 2019 - highs at circa 19.30.
The daily chart shows how the pair has now successfully broken above both the 50 and 200-day MAs in the early 18s. These would normally be expected to present prices with a tough ceiling of resistance but since the exchange rate has broken clearly above them the way is now open to more upside.
The next major target is the 19.30 highs as mentioned above and it’s then likely the pair could pull-back for a while during the medium term as traders take profit.
Of course, it is also possible the pair could break above the range highs and continue higher to a target at 20.000.
The daily chart is used to give us an indication of the outlook for the medium-term, defined as the next week to a month ahead.
The weekly chart - used to give us an indication of the outlook for the long-term, defined as the next few months - shows how the pair will probably continue rising up to the aforesaid targets over the long-term.
The 20.000 target is a key level and long-term historic high and there is a heightened chance that if it reaches it, it will fall back down to the 19.30 range highs and perhaps go sideways in a consolidation for a while before the next directional impulse evolves.
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The South African Rand to Remain at Risk of Global Sentiment Trends
The main driver of the Rand in the short-term is likely to be global risk trends which tend to weigh on the currency when they turn negative because of fears about global growth.
Chinese industrial production data is out on Wednesday and if it undershoots the 5.8% forecast there is a chance investors will read into that that the Chinese economy is slowing because of the trade war with Washington. In such a scenario the Rand would likely weaken.
Seasonal trends are also likely to weigh on the Rand in general over the summer, according to Investec.
“Typically global financial markets experience a sell in May-and-go-away phenomenon, namely the northern hemisphere summer vacation effect which tends to result in an exodus from riskier assets as many market players take time off, and are mostly out of the markets away on holiday,” says Annabel Bishop, an analyst at Investec.
The risk-averse seasonal backdrop is likely to last until the end of Q3, says the analyst.
Brexit is another possible global risk event which could weigh on the Rand - although in the case of GBP/ZAR the Pound would weaken more if there was a hard Brexit.
Bishop expects another 0.25% interest rate cut from the U.S. Federal Reserve (Fed) in September, however, which could actually help support riskier assets, including the Rand.
Investec forecasts GBP/ZAR to fall to a target of 17.87 at the end of Q3, 17.46 at the end of Q4 and 17.05 at the end of Q1 2020.
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