SOUTH AFRICAN CURRENCY MARKET REPORT - 01 JULY 2014 I don’t think there is too much to report following last week’s ZAR market report. The fundamental picture really has stayed the same with some new additional pressure in the form of a new 220,000 member NUMSA strike. The focus will primarily be on the length of this strike as these strikes are now part and parcel of the SA landscape so the focus has really shifted onto the ‘length’ of the strike as opposed to the fact that there is a new strike on the go. So far we haven’t seen the ZAR affected by this particular strike as it is just part of a very weak fundamental picture that we are seeing at the moment: - Continued labour unrest - Large trade deficit - GDP most likely will not be above 2% this year - Very high inflation (far higher than the 6% inflation figure the government spins us!) - Weaker economic outlook putting pressure on the budget - All of this translates into a weaker job market The fundamental picture is quite simply ‘poor’. For me the focus and interesting part of the past week was the short term technical move which gave us an insight into who is controlling this trend. At the beginning of last week we were trading slightly above USD 10.50 which is a key technical level within both the medium and long term trends. The ‘risk was on’ early last week .ie. the risk that if the market dropped below 10.50 then we could have seen a super sharp technical reversal within these two key trends changing the ZAR landscape significantly for the next while. Just a small drop of another 5-10 cents would have significantly affected the ZAR technical picture. It is always interesting to watch the short term price movements around these key levels as they provide insight into (1) who is controlling the longer term trend, and (2) where these buyers/sellers are siting. We saw the market drive pretty sharply away from the 10.50 level up to over 10.60 showing us that there are most certainly ‘real money buyers’ sitting in the low 10.50’s and we’ve subsequently seen the market retreat back into the low 10.60’s away from that dangerous key support level. Without stating the obvious, but applying some logic to how and why the markets move, this means that these buyers are pretty powerful and determined (at this point in time) to defend that level. They have shown that they are most certainly there. So what is interesting now is that if we start to go back down to the USDZAR 10.50 then we would expect these real money players should still be there to defend that level in the same way as last week. I use the term ‘expect’ as they have told and shown us where they are so it gives us a line in the sand to benchmark the strength and positioning of these buyers IF we go back down there. So focusing on the ‘downside risk’ we expect to see these same buyers defending this level meaning that IF we drop below these levels (USDZAR 10.50 or so) then something material has changed and the market could and should drop sharply if price dips below 10.50. The fact though, that these real money buyers showed their hand at 10.50 means that at this point in time they are still interested in and are controlling the longer term trend which is still UPWARDS. I don’t think we are seeing much interest, and certainly no volatility, across most currencies at the moment in the very short term, but we would like to see USDZAR start shifting up towards the 10.70 level this week as we want to see some follow through from the strong defensive effort at 10.50. We need to see some sort of ‘confirmation’ that the long term trend is still up and that these real money buyers have interest not only at 10.50 (to defend the level) but to buy more at higher levels and push the market even higher. At this point we want to see some buyers come into the market to push higher. We have seen some buyers in the market pushing USDZAR into the mid 10.60’s which is a good sign and the bias at this point in time still points towards a weaker ZAR (in our opinion). https://exchange4free.co.za/south-africa-zar-forex-market-reports.html
Posted on: Tue, 01 Jul 2014 13:23:32 +0000
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