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Date: 2008-08-04 16:34:29
Exchange4free Weekly Market Report - 04 August 200
South Africa
The movements on the ZAR at the moment have very much been a ‘domino effect’ type of move but seemingly driven by very little fundamental change. We’ve seen a strong improvement in the trade deficit from – R10 Billion to around flat bearing in mind though that this is a notoriously volatile number. There is some positive sentiment towards South Africa on the back of a perceived solution to the Zimbabwe crisis and this has no doubt added to the attractiveness of the region.
To me, I just don’t see it. The market shows the truth and only the truth so it doesn’t really matter what I think but at this point in time my concerns are that the ZAR is being driven purely by speculative demand as opposed to long term capital inflows into the wide economy. Africa is currently the flavour of the month and the only liquid currency to take a punt on the region is the ZAR. So in effect, many short term speculators keen for a short term position on the African region (and South African more specifically at the moment) generally use the South African market as their product of choice purely because there is significant liquidity in these markets to enter and exit positions with relative ease.
The play at the moment is also one of ‘relativity’. South Africa on paper is not looking phenomenal: There is huge unemployment, political uncertainty with the Zuma trial starting today, high interest rates with the potential to kick off a major credit crunch (not currently expected by anyone in the market which gives it more than a decent chance of happening)……..BUT ‘relatively speaking’ South Africa is still an attractive investment option compared to the rest of the world which is still suffering from a major credit crisis, falling growth, recessions, housing slumps, plummeting equity markets .etc.
So on a ‘relative basis’ South Africa is actually quite an attractive option at the moment. Investors are looking to put their money somewhere and SA is probably one of the best of a very bad lot of investment options.
The concern here is how much of the money driving the ZAR strength is short term speculative, and how much is long term FDI. My guess is it’s heavily skewed to short term flows and these can leave just as quickly as they’ve arrived.
A lot of people are reactive as opposed to proactive. A reactive person watches GBPZAR go to 16.30, decide to hold out for even higher levels, watch the market drop, panic and eventually end up selling at 14.50 after the down move has occurred.
The trick here is to put a ‘proactive’ cap on. The truth of the matter is that the down move has been missed. It has already dropped over R2 on GBPZAR. Sure, it could drop further but the risk .vs. reward of selling now is the inverse of what it was up at 16.30 .ie. the chances of a bounce higher from here are far greater than the market dropping to 13.00
So I would be looking for opportunities to play the long side of the market (buy foreign currency, sell ZAR) from these levels. This is what most long term players are doing and a lot of the ZAR’s strength has also been driven by the breaking of a few key support levels which have forced these longer term players to get stopped out therefore exacerbating some of the down move we have seen.
Technically speaking, we’ve seen a slightly unclassical, but very big nonetheless, double top in USDZAR with price objectives below 7.00. This could have dire consequences for GBPZAR and EURZAR which could drop very aggressively from a technical perspective.
So we have a slight divergence at the moment with fundamentals (from my point of view) pointing towards a weaker ZAR over time but the technical picture is showing a potentially very strong ZAR over the next few months.
The view for the week is for a short term bounce from current levels.
7.43 – This is the neckline of the big double top. I suspect that price will bounce from here up towards this level to test it again. What is does from here will be key for the medium term trend going forward.
7.22 – Current Price
I’ve decided not to put in any lower supports as there aren’t any really besides some confusing calculations that aren’t massively relevant with the double top being the dominant pattern driving this move.
These are very good levels to sell ZAR and buy foreign currency.
Good luck and all the best for the week ahead!
Please do not hesitate to call Exchange4free for any advice or foreign exchange related queries.
08456521022
We are the experts on the ZAR and provide the cheapest way to send your money home.
- Guaranteed best exchange rates on the ZAR (we will beat any quote)
- Completely FREE money transfers with no hidden costs
- No settlement or deposit fees at your SA bank (which can be up to R500)
www.exchange4free.co.uk
The movements on the ZAR at the moment have very much been a ‘domino effect’ type of move but seemingly driven by very little fundamental change. We’ve seen a strong improvement in the trade deficit from – R10 Billion to around flat bearing in mind though that this is a notoriously volatile number. There is some positive sentiment towards South Africa on the back of a perceived solution to the Zimbabwe crisis and this has no doubt added to the attractiveness of the region.
To me, I just don’t see it. The market shows the truth and only the truth so it doesn’t really matter what I think but at this point in time my concerns are that the ZAR is being driven purely by speculative demand as opposed to long term capital inflows into the wide economy. Africa is currently the flavour of the month and the only liquid currency to take a punt on the region is the ZAR. So in effect, many short term speculators keen for a short term position on the African region (and South African more specifically at the moment) generally use the South African market as their product of choice purely because there is significant liquidity in these markets to enter and exit positions with relative ease.
The play at the moment is also one of ‘relativity’. South Africa on paper is not looking phenomenal: There is huge unemployment, political uncertainty with the Zuma trial starting today, high interest rates with the potential to kick off a major credit crunch (not currently expected by anyone in the market which gives it more than a decent chance of happening)……..BUT ‘relatively speaking’ South Africa is still an attractive investment option compared to the rest of the world which is still suffering from a major credit crisis, falling growth, recessions, housing slumps, plummeting equity markets .etc.
So on a ‘relative basis’ South Africa is actually quite an attractive option at the moment. Investors are looking to put their money somewhere and SA is probably one of the best of a very bad lot of investment options.
The concern here is how much of the money driving the ZAR strength is short term speculative, and how much is long term FDI. My guess is it’s heavily skewed to short term flows and these can leave just as quickly as they’ve arrived.
A lot of people are reactive as opposed to proactive. A reactive person watches GBPZAR go to 16.30, decide to hold out for even higher levels, watch the market drop, panic and eventually end up selling at 14.50 after the down move has occurred.
The trick here is to put a ‘proactive’ cap on. The truth of the matter is that the down move has been missed. It has already dropped over R2 on GBPZAR. Sure, it could drop further but the risk .vs. reward of selling now is the inverse of what it was up at 16.30 .ie. the chances of a bounce higher from here are far greater than the market dropping to 13.00
So I would be looking for opportunities to play the long side of the market (buy foreign currency, sell ZAR) from these levels. This is what most long term players are doing and a lot of the ZAR’s strength has also been driven by the breaking of a few key support levels which have forced these longer term players to get stopped out therefore exacerbating some of the down move we have seen.
Technically speaking, we’ve seen a slightly unclassical, but very big nonetheless, double top in USDZAR with price objectives below 7.00. This could have dire consequences for GBPZAR and EURZAR which could drop very aggressively from a technical perspective.
So we have a slight divergence at the moment with fundamentals (from my point of view) pointing towards a weaker ZAR over time but the technical picture is showing a potentially very strong ZAR over the next few months.
The view for the week is for a short term bounce from current levels.
7.43 – This is the neckline of the big double top. I suspect that price will bounce from here up towards this level to test it again. What is does from here will be key for the medium term trend going forward.
7.22 – Current Price
I’ve decided not to put in any lower supports as there aren’t any really besides some confusing calculations that aren’t massively relevant with the double top being the dominant pattern driving this move.
These are very good levels to sell ZAR and buy foreign currency.
Good luck and all the best for the week ahead!
Please do not hesitate to call Exchange4free for any advice or foreign exchange related queries.
08456521022
We are the experts on the ZAR and provide the cheapest way to send your money home.
- Guaranteed best exchange rates on the ZAR (we will beat any quote)
- Completely FREE money transfers with no hidden costs
- No settlement or deposit fees at your SA bank (which can be up to R500)
www.exchange4free.co.uk
