SA Markets

Dollar-rand saw a range bound start to the week, with no clear direction as the pair moved sideways with markets waiting to see the outcomes of central bank decisions next week.

Despite an underlying tone of strength for the dollar, Wednesday saw USDZAR move under strong support levels such as R15.50/$ and R15.35/$.

Furthermore, yesterday a breakthrough under R15.20/$ saw the pair move to a low of R15.09/$ before rebounding back up to R15.25/$ this morning – a move back up to stability around R15.20/$ is expected after such an impulsive move yesterday.

The rand’s strength yesterday was likely caused by SA inflation which showed that prices were 5.9% higher this past December than in December 2020. This data was good for the rand because it increases the odds that at next weeks SARB meeting on Thursday the rates will be hiked to control inflation.

The dollar has a busy economic calendar next week with CPI, consumer confidence and the US Fed interest decision coming out – the Fed’s comments will be a market mover as the expectation of a rate hike is likely already priced in.
Expect a volatile week as traders pull out of positions before big data releases and move back in after sentiments change.

Technically:
Shattering so many supports gives the expectation that we may range or retest R15.30/$ before perhaps making a move again to R15.15/$. Whether we firmly move lower than R15.20/$ today will give a better indication of our bias for next week.

As mentioned, next week will be a volatile one and if the USDZAR can break nearer to R15.00/$ then it will occur amongst the chaos of investors playing against the US Fed meetings and other central bank decisions.

European Markets

The euro turned a corner this week, the markets will have focused on yesterday’s ECB meeting minutes which came out yesterday afternoon.
The policy of the ECB creates a tough paving for the euro as the European Central Bank officials tend to be more patient than investors prefer.

The euro may benefit next week if the US Fed delivers a talk and it is not as aggressive as markets would have expected. There is currently a divide between EU officials on where inflation is going and its persistence, investors will be watching as to how soon the ECB will pull back the stimulus and whether rates will be changed.

Technically:
EURZAR is on the trajectory to test R17.00/€, should the pair remain below R17.17/€ then the odds of such a move lower will increase.
If a correction back up occurs then the euro-rand may find its way back to R17.40’s.

UK Markets

The pound lost a lot of ground this week, politics in the UK may be the main driver behind this weakness.

PM Boris Johnson’s approval rating dropped to 29% and the decision is on the table as to whether a vote of no confidence will be launched against the Prime Minister. If the vote occurs then the pound will suffer immensely similar to when our very own former President Jacob Zuma had votes of no confidence tabled against him and we saw rand weakness.

Furthermore, the Bank of England will meet on the 3rd of Feb where rates are anticipated to be hiked, if the BoE does not have an aggressive approach in their meeting minutes then markets may react adversely to the surprise in tone.

Technically:
GBPZAR has lost over 50c this week, such a drop is bound to have a correction back up to balance the ground lost – however pressure with the upcoming US Fed decision and anxiety over Boris Johnson’s future may keep the Sterling contained and pushing lower levels. Watch out for R20.55/£, as moving below this will open the gates for a R20.40/£.