The weaker than expected US CPI results sparked a prompt risk-on rally which sent the dollar and US bond yields tumbling. The rand caught a strong bid off the back of this boosted risk-on sentiment which allowed the rand to pull the pair all the way onto the blue support line at 18.13.
The critical rate to keep an eye out for now is the black 61.8% Fibo retracement rate at 18.27. A failed break back above this level will allow the rand to pull the pair lower onto the blue 61.8% Fibo retracement rate of 17.94, which coincides with the long-term trend line. A break back above 18.27 will however allow the pair to inch back up towards the 200-day MA at 18.60.
The fundamental factors behind the rand’s gains is purely due to a change in investor sentiment following the dovish Fed interest rate decision a few weeks ago and the narrative that inflation is peaking. As long as the market remains confident that the Fed will be able to pull off their “soft landing,” the more interest the rand will get from the carry trade. Other fundamental factors that could support the rand are quite thin particularly commodity prices that have remained range bound. Next week the SARB is expected to hold the repo rate at 8.25% and it’ll be interesting to see how the markets react once the waters across the Atlantic has settled.
In terms of technical indicators, there is a degree of divergence on the RSI which could be an early signal of a move higher towards 18.50-18.60 before the rand is allowed to test the support rate at 17.94. The 50-day MA is also rolling over which can create a death cross if it crosses below the 200-day MA. This will be a bullish indicator for the rand since the last time the 50-day MA crossed below the 200-day was in April 2022 and October 2020.
For now, I’m sitting on the fence with this pair as I believe the risk-on rally may have been overdone following the US CPI print. I’m watching the DXY and the US 10-year yield to judge whether the rand’s rally can continue. A turn in the DXY and US yields will pin the rand back onto the ropes if we don’t see a significant rally in commodity prices.
The critical rate to keep an eye out for now is the black 61.8% Fibo retracement rate at 18.27. A failed break back above this level will allow the rand to pull the pair lower onto the blue 61.8% Fibo retracement rate of 17.94, which coincides with the long-term trend line. A break back above 18.27 will however allow the pair to inch back up towards the 200-day MA at 18.60.
The fundamental factors behind the rand’s gains is purely due to a change in investor sentiment following the dovish Fed interest rate decision a few weeks ago and the narrative that inflation is peaking. As long as the market remains confident that the Fed will be able to pull off their “soft landing,” the more interest the rand will get from the carry trade. Other fundamental factors that could support the rand are quite thin particularly commodity prices that have remained range bound. Next week the SARB is expected to hold the repo rate at 8.25% and it’ll be interesting to see how the markets react once the waters across the Atlantic has settled.
In terms of technical indicators, there is a degree of divergence on the RSI which could be an early signal of a move higher towards 18.50-18.60 before the rand is allowed to test the support rate at 17.94. The 50-day MA is also rolling over which can create a death cross if it crosses below the 200-day MA. This will be a bullish indicator for the rand since the last time the 50-day MA crossed below the 200-day was in April 2022 and October 2020.
For now, I’m sitting on the fence with this pair as I believe the risk-on rally may have been overdone following the US CPI print. I’m watching the DXY and the US 10-year yield to judge whether the rand’s rally can continue. A turn in the DXY and US yields will pin the rand back onto the ropes if we don’t see a significant rally in commodity prices.