Pound Could Rise to Top of Range vs. South African Rand this Week
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- GBP/ZAR pivots into short-term uptrend
- Possibility of move up to top of long-term range
- Rand to be moved by oil prices and SARB meeting
The Pound-to-Rand exchange rate is trading at around 18.55 at the start of the new week after rising 2.23% in the week before. Studies of the charts suggest the pair could continue rising in the short-term if it is able to break above the September 20 highs.
The 4hr chart - used to determine the short-term outlook which includes the coming week or next 5 days - indicates the pair may have begun a new short-term uptrend since bottoming at the September 12 lows.
Since ‘the trend is your friend’ this uptrend is biased to continuing higher, with a break above the 18.71 September 20 highs providing the confirmation for more upside to the next target at 18.90 at the level of a major trendline.
The daily chart tells a similar story and suggests the pair may struggle to break out above the major trendline which is also the ceiling of a long-term range.
It is more likely that if the pair reaches that level it will pull-back and go sideways for a time consolidating before the next directional move.
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 shows more clearly why we see the pair trapped below the circa 19.00 level - it is confined to a range over the long-term and is likely to respect that range’s highs and lows going forward.
A move up will likely pull-back from the 18.90 upside target at the range highs in the longer-term as well as shorter-term too.
The weekly chart is used to give us an indication of the outlook for the long-term, defined as the next few months.
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The South African Rand: What to Watch This Week
The three biggest drivers of the Rand in the coming week are likely to be global risk appetite as defined by trade war headlines, the fluctuations of the U.S. Dollar to which the Rand is highly negatively correlated, and the release of a South African business cycle indicator.
The Rand fell on Friday after the delicate trade detente which had grown back up between the U.S and China seemed to be showing cracks again.
The news that Chinese negotiators decided to leave trade talks in the U.S. early - turning down a courtesy visit to farms in Montana and Nebraska in the process - pulled risk assets substantially lower, ZAR included.
The trade war continues to take a toll on global manufacturing which is having knock on effects for heavily exposed countries like SA.
Another major factor for the Rand is the U.S. Dollar which tends to go up when risk appetite falls. The Rand is highly negatively correlated, meaning it tends to go in the opposite direction to the U.S. Dollar.
The greenback could be influenced by U.S. PMI data out on Monday for September. PMIs are a reliable forward indicator for the economy so if they come out lower-than-expected - which is a risk for Manufacturing - it could bode ill for the economy and the Dollar may weaken.
The US Markit manufacturing PMI is expected to have increased to 50.4 in September according to analysts expectations, from 50.3 in August when the data is released at 14.45 BST.
“The print will be closely scrutinised as a strong number could likely tip the balance in favour of a hawkish board amongst Fed policy makers,” says Shireen Darmalingam, an economist for Standard Bank.
The main domestic release for the SA Rand is the South African Reserve Bank (SARB) leading indicator for July which warns of turns in the business cycle.
The SARB leading index is out at 10.00 on Wednesday.
A lower-than-expected result is likely to weigh on the Rand and vice versa for a higher-than-forecast result.
“We look forward to the SARB’s leading indicator for July this week. Recall, the index slipped to 103.4 pts in June from 103.9 pts in May and marking the ninth consecutive month of contraction,” says Darmalingam. “The current economic downturn started in December 2013, and the sustained decline in the LEI bodes ill for the near-term economic outlook. We expect GDP growth to come in at 0.5% in 2019, with risks tilted to the downside.”
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