Hi there,
USDZAR printed a high at 7.8750 last week with GBPZAR touching a high around 15.30 on the back of the power crisis denting future growth forecasts for the SA economy as well as shutting key gold and platinum mines throughout the country. Things are simply not looking good and there seems to be no short term solution in sight. There have been a few ingenious solutions bandied about over the past few weeks like ‘go to bed earlier’, ‘boil your water over a fire’ and all these silly things but the bottom line is that going to bed earlier means that people still spend less therefore affecting the economy. There is no short-term solution and the government needs to realize that the damage has been done in the eyes of the international community and they are now seen as ‘incompetent’ and the confidence that they built up over the last 14 years has been wiped away in a matter of weeks.
Yes, the markets are extremely fickle but that’s life and the bottom line is that we need to look at what is currently happening and towards the future – not what could’ve or should’ve. That horse is long gone.
Within the major trend the ZAR is an undoubted sell. You have to ask yourself the question? Over the next few years do you see the SA economy improving or getting worse? To me these questions don’t even need answering as SA has clearly had it’s time and it’s going to be a rocky road ahead in the short term. This is not an opinion – it’s fact. And sometimes facts can be hard to swallow.
We’ve seen price break above our 2 key resistance levels at 7.59 on USDZAR and 15.00 on GBPZAR. Both moves saw price drive aggressively higher as stops were triggered and the psychology of the market shifted. It’s a ZAR sellers market but that doesn’t always mean that it’s a sell ‘from these levels’. My only concern at the moment is based on an ‘unrealistic expectations hypothesis’ which basically means that the market can’t just jump from 13.20 two weeks ago to 20.00. These moves take time and already we’ve seen a massive move from 13.20 to 15.30 in a short period of time. It is ‘unrealistic’ to think that this can just carry on forever. The market needs to pause, catch its breath and regain its strength. It’s looking a little tired to me at these levels and I suspect we could see price settle around here for a while before seeing the next leg higher.
Keep an eye on the following levels this week:
8.00 – Psychological level (We may see a test of this level but would be surprised to see a break above just yet)
7.8750 – Last weeks 2008 high
7.80 – Current Price
7.63 – Key Support Area (Expect to find buyers around this level
7.59 – Former high broken last week
The above levels are key going forward and as I’ve mentioned before, it is the behavior of price around these levels that gives subtle clues as to the strength or weakness of the market. A break above 7.8750 for example would indicate good strength whereas a break below 7.63 indicates that something in the market has changed. As long as price stays between these key levels then the underlying direction is UP.
It looks to me as if price wants to push up and challenge the 7.8750 and maybe even the 8.00 level this week but keep a close eye on whether it manages to successfully go above these as a failure to do so could see us correct downwards in the short term.
Good luck and all the best for the week ahead!
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