It should be back to business this week after a fairly quiet Christmas and New Year period - from a price action perspective. It's been a bit of a strange few weeks with a crazy fundamental schedule not being complimented by corresponding price action. Some would say that emerging markets, and in particular South Africa, is not looking pretty:

- Our main man JZ cleaned up the ANC presidential elections but has since been thrown back in the spotlight by the NPA
- Pakistan and Kenya (although not part of the main basket of emerging market portfolios) are a complete mess

So once again it seems to be a question of which is worse? The US or Emerging Markets?

It's difficult to say at this stage as most traders are only coming back into the markets this week so it will be interesting to see which the market considers to be the 'worst' - US or Emerging Markets.

The bottom line is that fundamentally the South African economy is one big SELL! Political instability coupled with veiled threats of violence, a sharply rising interest rate curve, a record trade deficit, real growth is ambling along .etc. From a fundamental perspective 2008 is not looking good but this fundamental position is certainly not reflected in the ZAR exchange rate at the moment.

My personal feeling is that at these levels the ZAR is a blind sell. I didn't see any justifiable reason to buy ZAR at 14.60 so certainly don't see any reason to buy at 13.50 - to me the currrent fundamental position simply does not justify buying ZAR at these levels.

Both liquidity and increased market participation will return to the market this week so any moves seen will be 'real' moves and it will be interesting to see what the market decides - 'better' or 'worse'?

I say 'worse' .ie. sell ZAR from these levels.

Technically the picture is fairly directionless at the moment but the key level is at 6.98 which is where the 200 Day Moving Average sits. This is the only level that I'm interested in at the moment for the sole fact that price has been sharply rejected off this level twice in the past 2 months. Both moves up in USDZAR have been sharply rejected off this MA which makes it a key level on the topside going forward. Downside rejections are getting shallower though and I suspect that the next attempt at the 200 Day MA is going to result in a strong 'sustained' upside break within the medium term trend which should set the tone for a weaker ZAR over the next 6-12 months.

Price needs to break above this 200 Day MA though at 6.98 before any change in trend can be confirmed. Until this happens we are still within a large flattish range. What I am trying to do though is a play out a high probability scenario which I believe the market is moving towards in the short term (ie. a break above the 200 Day MA following by a strong sustained upmove). This is the move that I am looking for over the next few weeks and the number 1 potential picture and scenario that I have set up in my mind.

Good luck and all the best for 2008 and the week ahead!

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