JSE Top 40 Cash Index price forecast: US rates decision crucial for South African Index direction

FOMC rates decision and guidance key for global markets

The Federal Open Market Committee (FOMC) meeting and rates decision on Wednesday evening (15th of June at 8pm) will be a key factor affecting short term market direction and should be monitored by those trading the South Africa 40 Cash Index.

Persistent US inflation saw an unfavourable uptick to 8.6% year on year, that is according to the latest Consumer Price Index (CPI) reading reported on Friday the 10th of June. This has prompted some speculation that the Federal Reserve could move to raise interest rates by as much as 75 basis points on Wednesday. The resultant effect has seen riskier assets such as those of our local market sold off in fear that global economic growth will be stifled, perhaps enough to move markets back into recession.

For a rebound from oversold territory on our local index (the South Africa 40 Cash), could find some relief if only a 50 basis point hike is realized rather than 75. Markets will then also need to assess the Federal Reserve commentary to ascertain whether larger (than 50 basis point) hikes are on the cards moving forward.

South Africa 40 Cash Index – Technical View

The sell-off in the global equity marketplace has seen the South Africa 40 Cash Index moving aggressively lower, creating a breakaway gap from the 61340 level. The price of the index is now testing support at 59150 and has moved into oversold territory. The widening Bollinger Bands on our chart highlight the level of increased volatility currently in place.

We are at a very difficult juncture in the market. Sentiment is weak despite the oversold suggestion. Markets such as our own can be prone to violent swings in either direction in the current environment, so extreme caution is advised right now.

On a purely technical basis, the trend bias for the South Africa 40 Cash Index is to the downside. Trend followers might consider using a break of support at 59150 (should it occur) for short entry, targeting a move towards the next level of support at 57035. Should we not see the 59150 break in the near term and instead a rebound from oversold territory start to manifest, traders might consider looking for short entry on a bearish reversal before gap resistance at 61340.

Should a rebound from oversold territory carry enough momentum for the price to trade back above gap resistance at 61340, we will reassess the merits of reinstating long positions once again.