Pound to Rand Rate Outlook: Technical Update Shows Sterling Still Marginally Favoured

The Pound to South African Rand exchange rate (GBP/ZAR) has fallen in a steady downtrend during the month of August from the 17.6000 highs to its current level at 16.7300.

The pair has rebounded strongly at the start of the new trading week after geopolitical fears centred around North Korea and hurricanne Harvey led to a flight to safety.

The Rand is highly correlated to risk appetite and therefore the move away from risky assets to safety hit the currency hard, and explains the rebound from 16.73 to the current 16.94s.

Neither geopolitical driver looks like it is going away anytime soon - suggesting it is more probable the Rand will weaken, and therefore the GBP/ZAR pair will rise rather than fall.

From a technical perspective the August downtrend has been thrown into doubt by the gap up and sudden break of new activity higher on Monday, however, its too soon to say for sure whether this ember of an uptrend will grow into anything bigger. 

The weekly chart (this gives us longer-term clues) is showing signs the pair could be birthing a new medium-term uptrend especially after the break above the major trendline in June.

The disapointing follow-through, which has seen sideways rather than bullish activity, however, also raises doubts about the appetite of buyers.

One of the principles of technical analysis is that the trend is intact until the weight of evidence says otherwise, and although there are signs the short-term downtrend during August could be cracking it remains intact as long as the 16.9914 highs are not breached.

A break above them would signal a new mini-uptrend, which could lead to a continuation up to a target at 17.10 where the August 17 highs are, and the 200-four hour moving average.

Until then the trend remains down, but we would want to see a break below the 16.7387 lows for confirmation of an extension down to a target at 16.7000, where a major trendline is situated and is likely to supply support.

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