Hi there,

South Africa

On Thursday, GBPZAR traded a range of 15.27 to 16.29 which is price action that we haven't seen in years. Pretty scary stuff but reflective of a market that is pretty nervous at the moment. I love the word volatile as it's just a fancy market related way to say 'nervous. It's easier for people to relate to the term nervous and that's exactly what the market is at the moment. The market is a reflection of human emotions and it would be fair to say that these uncertainties and emotions are being pretty well reflected in current ZAR price action. We've had a few major events this past week with an aggressive buying reaction to lower prices, as well as breaks above key psychological levels at 8.00 and 16.00 in USDZAR and GBPZAR respectively.

There are no major economic releases this coming week so we should see the ZAR trading on the back of the relatively poor economic data over the past couple of weeks. The break above the key round figures of 8.00 and 16.00 are huge psychological blows to the bull camps and the major trend is now most certainly up. The ZAR is very very weak at the moment and this is further highlighted by the fact that commodity prices are near all time highs whilst the USD is breaking to new all time lows versus the EUR. In these circumstances, and particularly with South Africa’s yield advantage, we should really be seeing a fairly strong ZAR. The mere fact that the ZAR is weakening against the USD is an indication of just how sour the appetite for South African assets has become. Remember that the US is now officially in a recession and still investors would rather be buying USD than ZAR! That’s an indication of the point that the SA economy has reached.

I’ve always said that the powers that be are so far behind the curve it’s not even funny and they were so busy high fiving each other when we had the lowest interest rates and strongest ZAR in years that they took their eye off the ball. In our desperation to champion a growing economy, strong ZAR and low interest rates we forgot that markets are dynamic and whatever is done today, will eventually be reflected in price tomorrow. The problem here is that everyone bought into the hype but in hindsight rates were cut far too aggressively and we should have seen it coming.

Anyway, no point crying over spilt milk. The market is what it is. I can’t control it and neither can you. The only thing we can go on is price action. Opinions mean nothing – what is price telling you? Well, an mentioned, if investors would rather buy USD than ZAR then it’s a pretty bleak story for SA at the moment.

Technically speaking, we’ve broken above some major resistance levels and have thus far maintained price above these key levels. We could see an early push upwards this week particularly if the USD can claw back some ground across the board. I do have one concerning issue at the moment and that is that the market is massively overbought at the moment so I’m expecting upside potential this week to be slow. The trend is most certainly up but once again it’s all about risk .vs. reward. We saw some wild intraday swings last week and we could potentially see something similar this week as the market tries to establish price above these key former resistance levels.

Australia and New Zealand

We've seen a resurgence in the fortunes of GBP this past week with the positive interest rate differential and some decent economic figures suggesting that the Pound is not a bad buy at the moment and the strong selloff was maybe a little overdone. Strong trending markets don't turn on a dime though but it does look like both GBPAUD and GBPNZD have run out of steam and current price action could the beginning of a base in the recent downtrend.

We currently have both AUD and NZD being sold versus the USD and technical studies pointing towards further selling within the medium term trend. This should support the strong bounce that we’ve seen in GBPAUD and GBPNZD however we are approaching key resistance in the form of downtrend lines and 50 day Moving Averages which will provide strong resistance for the current move up.

The price action of the past week or so, coupled with the above key resistance points, is telling me that we could see price stabilizing or even dropping from current levels as the market tries to form a solid base from where it can move higher. A market that has been falling aggressively for the past year or so doesn’t just turn around within the space of a week and shoot straight back up. To expect that would be completely unrealistic. I’m not saying we wouldn’t love to see that happen, but what I am saying is that the markets just don’t work like that. The market has other ideas and those ideas aren’t based on what you or I think.

So here’s where we stand for the week ahead. I don’t see too much more upside progress that week as we’re at key resistance levels that won’t go without a fight. There will be sellers at these levels fighting to hold price down so we could see prices stabilize or correct down for a week or so to catch their breath before attempting to move higher.

Good luck and all the best for the week ahead!

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