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South Africa 40 Cash Index looking bullish but inflation risks remain

The South Africa 40 looks to have set up a short-term range trading opportunity, although in lieu of high impact inflation data scheduled this week, risks thereto remain elevated.

Source: Bloomberg
Soure: IG Charts

The South Africa 40 Cash Index has continued to correct from what was previously overbought territory. The correction has been taking the form of a sideways consolidation rather than committed pullback.

The long-term trend for the index remains up, suggesting that keeping a long bias to trades is still preferable.

We have had a bullish move off the confluence of trend line and horizontal support. 75250 now becomes the target from this move. Traders who are long might consider using a close below trend line support as a trailing stop loss level for the trade.

Key data to watch

Traders will however need to consider the US Consumer Price Index (CPI) data out at 3:30pm local time. Inflation remains a key theme in markets and is likely to pose a short-term volatility risk. Should the data come in lower than expected, we expect a bullish rally to ensue. If the data is realised higher than consensus, then a breach of the guided stop level might occur.

The year on year (y/y) CPI reading is forecast to come in at 6.2% (previous 6.5%), while the month on month (m/m) figure is expected at 0.4% (previous 0.3%).

Of perhaps less consequence, but still relevant, is South Africa CPI data scheduled for tomorrow (Wednesday 15 February) at 10am.

In Summary:

  • Long term trend for the South Africa 40 Cash Index remains up

  • In the short to medium term the price trades in a rangebound environment

  • The price looks to have formed a bullish move off support

  • 75250 provides the initial upside resistance target, while a trailed stop along trend line support might be considered

  • US CPI data out at 3:30pm (local time) provides a key risk to the success or failure of the technical assumptions

  • Local CPI data is also scheduled for release on Wednesday the 15th of February 2023

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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