Welcome to this week’s Exchange4free ZAR Weekly Commentary
Huge week ahead – CPI, PPI and Trade Balance
Technically, USDZAR has made a strong break above the downward sloping trend line in effect since early March 2007 when price made new highs at 7.56. This is a key move within the medium term trend and could be indicative of a final bottom in the USDZAR downtrend. Technically speaking USDZAR should find strong buyers around the 7.05-7.00 level and price should move upwards from here (weaker ZAR going forward)
The weaker ZAR picture is being aided by weaker precious metals prices (which have a strong correlation with ZAR moves), a stronger USD across the board and a general unwinding of carry trades. There is also a slight risk premium creeping into the ZAR market as interest rate uncertainty increases as the market isn’t quite sure whether the Reserve Bank will or won’t hike rates.
It’s been pretty hard work though on both sides of the ZAR with price trading in fairly tight ranges of late. Could potentially be the calm before the storm as the entire market has seen the break above the downward sloping trend line and from a technical point of view there is now only one thing to do: sell ZAR.
We need the short-term fundamental picture to align itself with the technical outlook and we could see a nice little weaker move here in the ZAR. CPI, PPI and Trade Balance coming in from Wednesday so keep an eye on the market from then on as the market are going to move. No question – just in which direction. Technically we’re lined up for a nice weaker ZAR so some weak numbers will probably see the ZAR go significantly weaker this week. I suspect that strong numbers will just put us back into a short-term range but they market is definitely set up to potentially go weaker this week if we get weak economic figures to support this view.
Look for a break above USDZAR 7.17 this week to confirm the up move. If it doesn’t happen this week then it seems that the USDZAR bottom will play out a bit longer than expected. The market will be well supported going forward and I would expect the market to be buying USDZAR around the 7.05-7.00 level. Keep an eye on these levels particularly 7.05-7.07 supports this week as if they hold then we should see good buyers come into the market and send this ZAR weaker.
So this week becomes particularly important as it’s vital to see the trend line break followed by some aggressive buying. Some market players are calling a potential move back to the 7.40’s over the next few weeks.
The market needs some inspiration to get it moving and that should come this week from CPI, PPI and Trade Balance.
So here are these levels as the market currently sees them and for this week these are the levels we need to watch when making your currency decisions. I’m just focusing on 7.16-7.17 and looking for this to have a sustained break to get new trend going and change the psychology of the market:
Resistance: 7.16 (April 19th and April 30th highs and last weeks high at 7.17 – need to see these levels break this week)
Current Price: 7.10
Support: 7.07** (Key level from last week and needs to hold with 7.05 to get the new uptrend going – These are also former May 11th and 18th highs)
6.96 (10 Day Moving Average – look for price to stay above here for this week or key 6.87 may come under pressure)
6.90 ( May 17th low)
6.87** (This is the key level as 2007 lows – if you see this level break then the ZAR will go significantly stronger – keep an eye on this)
Please note that all other ZAR crosses (GBPZAR, EURZAR…..) will follow USDZAR as above so keep an eye on these levels and good luck for the rest of the week ahead.
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