Hi there,
The trading range over the past couple of weeks has been aided by both a severely overbought market as well as a lack of economic data to give the market new directional impetus. This week will see things change slightly with a very busy week ahead in terms of economic releases: GDP on Tuesday, CPI on Wednesday, PPI on Thursday, and finally the all important trade data on Friday.
The medium term trend is without a doubt up (weaker ZAR) but I have a slight worry at the moment. From a fundamental perspective, the market has pretty much priced in all the recent negative data and these have been fully factored into the current price. You have to ask yourself – how much worse can it actually get? I suspect that if we get some slightly positive data this week that we could get a small short-term rally in the ZAR. The market is positioned short ZAR so the risk this week is for some positive data which could see some of these shorts buying ZAR to cover their exposures.
Technically, there is a ‘potential’ double top forming around 7.90 with a neckline at 7.55. This level is key going forward and a break below could see USDZAR (and GBPZAR, EURZAR as well) fall very aggressively.
As I’ve said before, play good defense not offense. The trend is undoubtedly up but the ‘risk’ for the week ahead is without question on the downside.
The economic releases this week will give the market renewed directional strength so keep an eye on these figures and more importantly the markets reaction to this data this week.
Keep an eye on the below levels this coming week and in particular 7.55 as support (price much hold above this):
8.00 – Psychological level
7.92 – 2008 high (price needs to break above this to see a fresh bout of ZAR selling)
7.69 – Current price
7.55 – Neckline of potential double top formation. Be very careful of a break below this level as could take us lower very quickly. This level is key! If it breaks then downside target is around 7.20!
Good luck and all the best for the week ahead!
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