The Rand Report

Will the expected credit ratings review by Moody's and S&P support technical indications?

In our last note we were

  • Not considering the overbought signal as an opportunity to trade gains the prevailing uptrend
  • But rather looking for a pullback to around R13.86/$ for a new long entry, but considered a shallow pullback even more bullish for the USD/ZAR pair
  • We were targeting R14.50/$ and R14.80 as the favoured resistance targets

Since our last report the USD/ZAR did experience a shallow retracement reaching a low of R13.90/$. Circled black we see a bullish engulfing candle reversal which confirmed the end of the pullback. The Blue triangle shows a short term triangle consolidation which is considered a bullish continuation pattern i.e. the pattern alludes to the trend which preceded it as setting up to continue (in this context the uptrend). This trend is now continuing and we have further technical validation for supporting the uptrend. Once again, we accept that the currency pair is overbought but the validity is overridden by the uptrend consideration. The USD/ZAR has not yet reached the first upside target of R14.50/$ having fallen around 6c short thereof.  

We continue to favour further rand weakening against the dollar and maintain R14.50/$ and R14.80/$ as favoured upside targets. While the technical view looks bullish, the political uncertainty and upcoming ratings review seem to support the technical indications. Concerns now draw that the upcoming ANC elective conference may be postponed (not confirmed) and that South Africa could be subject to downgrades of its local currency credit ratings by Moody’s and S&P who are expected to deliver their respective decisions on the 24th of November. With this in mind we expect a pullback (if any) to be shallow due to the aforementioned catalysts. Therefore for traders not already committed, short term weakness towards R14.20/$ is considered the first long entry opportunity, although we would consider reversals at all the levels ahead of 13.70/$ as long entry opportunities and only a close below R13.70/$ as a failure of our bullish assumptions. 

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This information has been prepared by IG, a trading name of IG Markets Limited 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. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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