WEEKLY ZAR ECONOMIC AND TECHNICAL COMMENTARY – 1 April 2007
As it currently stands, the ZAR is 50/50. Any analysis, including this one, is purely a personal opinion based on mere speculation. At this stage, it’s a clear thumb suck and anyone’s guess to the future direction of the ZAR has a 50% chance of being correct.
The picture is extremely unclear at the moment with mixed fundamental data and no clear technical direction or patterns forming which would skew the probabilities towards a particular move.
The bottom line is that although the intraday and intraweek swings in the ZAR are fairly large – the market is completely range-bound at the moment and we simply need a break below USDZAR 7.04 or above 7.54 to determine the next big move in the ZAR.
I’ve always said there are actually 3 directions that a market can move in – up, down and flat.
Within the medium term trend we are currently flat lining since the beginning of the year.
Earlier this week we had a nice aggressive up move towards 7.40 with price being quickly rejected from these levels and closing around 7.25. This type of price action is not indicative of a market that is being fuelled by ‘real money’ as we call it. Real money is the big boys in the financial markets and these are the guys who you ultimately would like to align yourselves with. They are not in and out, short-term traders. They don’t drive prices up to 7.40 and then sell a few hours later back to 7.25. This type of price action is indicative of speculative activity and a few short-term momentum players getting in on the back of a fast move and a few breaks of key short-term levels.
The bottom line is that the ‘real money’ players haven’t shown their hand as yet and we are desperately trying to see where these guys want to send the market.
Fundamentally, this past week we had lower than expected inflationary data (CPI and PPI) which are pointing towards no more interest rate increases. Basically, inflation is currently around 5% which is nicely within the MPC’s target range of 4-6%. Funny that, as the petrol price went up 5% in March and is going up in the next few days by another 11%.
I’m really getting tired of this and if anyone reading this is looking for a great subject for a PHD thesis – try doing one on the South African PIF (Personal Inflation Rate). Very simple and should take about a week to complete – just a salary weighted expenditure per item. Simple.
You could do all sorts of exciting things like work out PIF’s for different salary ranges, range groups, family structures, age groups, geographic locations .etc. Okay, it may take you slightly more than a week but without a doubt no more than 2!
The one thing I will guarantee is that inflation in SA will not be 5%.
But I’m tired of speaking til I’m blue in the face about this. You make up your own mind – I’m just laying it out there.
Technical Commentary
Not much to add from last week. I would just be writing something for the sake of feeling obligated to say something that would bring comfort to everyone’s individual position which wouldn’t be fair. I would just be bull sh*ting you – and of course hoping that it worked out and I looked clever at the end of it.
There is simply no clear directional bias from a technical perspective – no clear patterns, no clear level breaks, no overbought/oversold markets .etc.
I’ve read loads of technical commentaries on the ZAR this weekend and funnily enough they were about 50/50 as to where the ZAR is going. Even funnier is that every single one expressed an opinion but I suppose that’s what these guys are paid to do – and at least 50% of them will be right I suppose.
My opinion still stands that there are massive fundamental problems filtering into the SA economy but the powers that be are in denial. Technically, it’s directionless in the medium term but my opinion (if you want it) is that we’re heading up (very, very slowly on a weekly close basis) and I don’t currently see any reason why the ZAR should strengthen 50 cents at the moment.
I do however see a lot of very compelling reasons why the ZAR could weaken a lot more than 50 cents against the USD (this could be a hefty move on the GBPZAR).
Good luck and all the best for the week ahead.
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