Pound / Rand Exchange Rate Tipped for a Ride Higher Following Significant Break Above Trendline
The Pound to South African Rand exchange rate has broken above a key multi-month trendline signalling the balance of probabilities now favour more upside, with 17.50 providing an initial target but the potential for much higher rates thereafter, in the medium term.
The pair has cleared resistance from a down-sloping trendline which has been capping activity since the August 2016 highs, and this is a bullish sign even though the break is still in its infancy.
The exchange rate has undertaken a classic return move following the initial breakout above the trendline at the end of January, and this has seen it pull back to the trendline to be supported where once it was resisted.
Now the return move is complete the pair should slingshot higher, although due to the doggedly persistent, long-term downtrend, we would first seek confirmation from a break above the 17.1950 highs before giving the get-go, with the next target at 17.5000.
However, an important break like this is sure to open the way to even more upside, and a move above the 17.5100 level might confirm an extension all the way up to the 200-day MA at roughly 18.4000 next.
Data for the South African Rand
The main release for the Rand in the next five days is Inflation data out at 08.00 GMT on Wednesday, February 15.
Headline Inflation in January is expected to edge up to 0.7% from 0.4% in the previous month of December.
Core inflation is set to increase by a 0.6% from 0.4% previously.
Rand Merchant Bank’s Strategist, John Cairns, expects a “turn in the inflation cycle (down)” with headline annualized inflation falling to 6.6% from 6.8% previously.
The chances are this could wrongfoot market expectations which appear to be for the opposite and lead to a depreciation in the Rand, which would chime with our bullish technical forecast for GBP/ZAR, as it would lead to a lift in the rate.
From being one of the most sensitive currencies to outside factors and risk appetite the Rand appears to be confused about how to react to Donald Trump’s policy agenda.
Being an emerging market economy the Rand could suffer if the Dollar strengthens overly increasing repayments on Dollar denominated debt and the cost of oil, a major import for South Africa.
On the other hand, a general global reflationary trend higher would support South Africa, so the Rand appears to be having mixed reactions to US data.
Data for the Pound
Inflation data for January is out at 9.30 on Tuesday, February 12, with analysts estimating a rise of 1.9% from the previous 1.6%.
A rise is forecast due to the impact of the weak pound which has increased the cost of imports.
It is not likely to be very bullish for the Pound because it will be put down to the fall in Sterling and not economic growth.
As such it may not radically alter the neutral stance of the Bank of England (BOE) who will not want to put interest rates up for fear of stifling growth.
Nevertheless, recent commentary from BOE’s Kirstin Forbes suggested she had adopted a more hawkish stance, signalling at least one of the monetary policy committee has shifted over to advocating higher rates.
On Wednesday Jobs and Earnings data will be released at 9.30 and is expected to show the Unemployment Rate remain at 4.8% ,Average Earnings unchanged at 2.8% and Employment change marginally push up by 1k.
