Pound Retains Bullish tone Against South African Rand after Break Above 17.35
The Pound to Rand exchange rate (GBP/ZAR) pair has broken above the key December highs at 17.35 in a strong bullish thrust higher.
This is significant in that it suggests where momentum for the pair lies.
The rate has broken clearly above the 200-day MA, which is a very bullish sign too.
After rebounding from the March lows the pair probably formed a bullish flag pattern.
It then broke out higher and moved up towards our previous target at 17.95.
We retain an upside bias and see the flag completing by moving roughly an equal length higher as the height of the ‘pole’ (see chart), which would take it to about the trendline at just below 18.00.
We have slightly revised down our upside target to reflect a more cautiously bullish stance and the fact the trendline is sloping, and we now place it at 17.85.
Data, Events for the Rand
The Rand’s main driver is global risk appetite when it is strong, the Rand rises, when it is not, it falls.
The Rand should trade with a positive bias in the week ahead as a result of the Macron win in the French presidential elections as he is seen as the ‘safe’ candidate.
US Retail Sales data on Friday, as well as inflation data, could also impact as it will signify how robust the US economy is.
There is a welter of South African tier 3 economic data including the Unemployment Rate (Q1) on Tuesday, May 9 at 10.30 GMT, Gold and Mining Production (Mar) on Thursday, May 11 at 10.30 and Manufacturing Production in March at 12.00.
Data, Events for the Pound this Week
From a data perspective, the main release for the Pound is the Bank of England (BOE) rate meeting and the BOE May inflation report at 12.00 GMT on Thursday, May 11.
No change in policy is forecast because of the ‘purdah’ preventing the authorities from making major announcements and changes to policies in the run up to the general election.
The BOE may downgrade growth expectations and raise inflation (notwithstanding the recent fall in oil), but according to analysts at Canadian lender TD Securities, the governor is expected to, “steer things back to neutral during the presser.”
Barclays expect the communication to be slightly hawkish, in an effort to boost the Pound and keep inflation at bay.
Like TD they also see the bank likely to forecast inflation to rise and GDP to fall, although only during 2017, as falling oil prices will bite in 2018, slowing inflation in the longer-term.
“As for the communication, we believe the Committee will be eager to repeat its slightly hawkish message from the February inflation report, keeping the focus on inflation, and banking on the support provided to sterling to mitigate risks of excessively high and sticky inflation. Changes in forecasts will be consistent with such a move sideways as we expect GDP growth to be revised slightly lower but inflation slightly higher," say Barclays.
Other important data released this week includes the RICS House Price Balance (Apr) at 00.01 on Thursday, May 11, Industrial and Manufacturing Production at 09.30 on the same day and the Trade Balance in March, also at 9.30.
