South African Rand Looks to Establish Uptrend Once More
The Rand is one of the strongest currencies against the Pound in a landscape otherwise dominated by Sterling strength at the expensive of counterparts.
On Tuesday, after Theresa May’s shock announcement of a snap election in June GBP/ZAR did not rise anywhere near as much as GBP/CAD or GBP/USD for example.
A brighter outlook for commodities and a more risk friendly environment may also now help support the South African currency as commodity prices appear to be rising and rumours abound of the People’s Bank of China (Pboc) cutting interest rates.
Such a move would help commodity countries such as South Africa as it would loosen money in China when the expectation had been more tightening.
The Rand may also derive strength from “strong inflows” into the South African bond market.
John Cairns of Rand Merchant Bank is optimistic, saying he sees the Rand, “stronger and re-establishing the strengthening trend.”
From a technical perspective we do not see a “strengthening trend” versus the Pound but rather Sterling’s continued dominance.
The pair continues to look like it is consolidating in a sideways range on the daily chart after shooting higher following the news of Pravin Gordhan’s redundancy.
The shallow pull-back is a sign more upside could evolve once it has finished going sideways.
The exchange rate may even have formed a sort of ‘flag’ pattern with the pole consisting of the move up from the March lows and the consolidation as the actual ‘flag’.
These patterns are forecast to break higher and follow-through the same distance as the ‘pole’ extrapolated higher at the point of the break.
The 200-day moving average situated just above the flag, however, is a major technical obstacle in the way of further upside.
Major moving averages provide dynamic levels of support and resistance on charts which repel the exchange rate when they are touched.
Therefore, we would want to ideally see a break clearly above the 200-day at 17.60 for confirmation of a continuation up to a target at 18.30, just below the trendline drawn down from the January 2016 highs.
