overview

This week, the main focus was on the major currencies posting weaker than expected data amidst rising inflation. The Euro Zone will also be joining the band wagon of increasing interest rates in the near future.

U.S AND SA MARKETS

The Dollar dropped to a one-month low against a basket of currencies including the Rand this week. Services PMI, Core Durable Goods Orders, and the quarter on quarter GDP were all lower than what was forecasted. Despite GDP not being a leading indicator, the decline from -1.4% to -1.5% can be attested to the rising inflation figures and lower demand of goods as living costs sky rocket as well. FED Chair Jerome Powell spoke on Tuesday touching base on the importance of restoring balance in the labour market by restricting growth in order to restore price stability. He further re-iterated that the U.S Central Bank would not hold back on going beyond the neutral rate if it is needed to achieve price stability. The other reason that the greenback is losing steam is due to the expectations for the FED to possibly pause its tightening of monetary policy in the second half of the year. This has since resulted in the vast decline of treasury yields which negatively affects the greenback as well.

Since the lockdowns in China’s financial hub, industrial profits in China sporadically fell by 8.5% from last year, this is the biggest decline since April 2020.

South Africans should brace for a shocking increase at the petrol pumps in June. We will be paying around R25 per liter for petrol next week. This is as a result of the subsidy to ease the price hikes comes to an end. Public road transport fares are likely to increase well, as well as food and commodity prices too.

Technically:
This week has been a bearish week for the USD/ZAR, with a high of R15.85/$ and a low of R15.56/$. Price action is trading within a short term downward channel, should it be respected the next possible support would be R15.41$ and may be seen next week. Should the downward channel fail to hold and the pair breaks to the upside, the most likely high would be R15.85$.

EUROPEAN MARKETS

Much like the U.S, the Euro Zone released weaker data than expected as well with Manufacturing and Services PMI data coming in lower than anticipated. This essentially indicates that manufacturing and service related industries are contracting in terms of output. ECB President Lagarde spoke on Wednesday at the World Economic Forum in Switzerland and touched base on the plan to exit negative interest rate by the end of the third quarter of this year. This decision was backed by other ECB members and boosted the Euro against the Rand. There will be a possibility that the rate will be raised by 50 basis points in July to combat inflation. Surging consumer prices and supply shocks caused by the Russian invasion of Ukraine has been the main driver of high inflation.

Technically:
The EUR/ZAR has been trading sideways within the same range as last week. The high of the week has been R16.98 and the low of the week has been R16.61. R16.98 is a strong level of resistance, should that level be broken we may test a high of R17.16 next week. Should the resistance level hold, our support level remains at R16.55.

UK MARKETS

Much like the dollar and the euro, the pound sterling released weaker than expected data as well. Manufacturing and Services PMI posted weaker than expected data indicating a shrinking economy. Four Members of Parliament of the Tory Party have called for Prime Minister Boris Johnson to step down after reports that Johnson attended parties during the lockdown period. Contrary to the demands for Johnson to step down, he has reiterated that he will not quit and focus on the people. Despite apologizing and taking responsibility, Johnson will be facing an inquiry by the Commons Privileges Committee about whether he lied to the Members of Parliament. Should he be found guilty, under the government regulations, he will be expected to resign. In other news, the UK Government is putting in place a 5 billion pound tax on oil and gas companies, to ease the sky rocketing cost of living for the people of Britain.

Technically:
The Pound Sterling had a mixed week technically, ranging between a high of R19.94 and a weekly low of R19.45. The GBPZAR keeps forming lower highs but maintains the same strong support level at R19.45. Should the sterling weaken next week, we expect at low of R19.56. Should the pair break R19.94, the pair may see a high of R20.11.