- The USD/ZAR has fallen hard during the trading session on Thursday, as the CPI numbers in the United States fell rather significantly.
- The 0.4% reading month over a month instead of the 0.6% expected have people running away from the greenback, and it’s especially interesting to watch this pair because emerging markets are still highly sensitive to interest rates as well.
- After all, the market is going to react to the debts owed by the local governments, typically based on US dollars.
Furthermore, the market will more likely than not look at the overall technical analysis, which suggests that we are going to continue to see a lot of noise in this general vicinity. The uptrend line sits just below, right along with the 17 Rand level. The 17 Rand level will be an area where we have seen a lot of psychological and structural importance recently. The 200-Day EMA sits just below there and is rising to make that move.
Rand Likely to Keep Losing Ground
If we can break above the top of the candlestick for the trading session on Thursday, then we would overtake the 50-Day EMA, perhaps reaching to the 18 Rand level. Alternately, if we were to break down below the uptrend line, then it’s likely that we could go down to the 17 Rand level before breaking further. I think a lot of this is also going to come down to risk appetite, as South Africa is so highly levered to hard assets. I do believe that the markets are still very much in an uptrend, and I think at this point it’s likely that we would see buyers coming in to pick up a bit of value eventually. After all, even though it was a very violent move during the day when you look at the overall picture, not much has changed from the longer-term point of view. The US dollar was overdone, and quite frankly we just needed an excuse for better profit-taking.
Even with the CPI numbers coming out lower than anticipated, the reality is that the market is probably going to have to get used to a tight Federal Reserve for the foreseeable future, and therefore the US dollar will continue to strangle everything else over the longer term.
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