OVERVIEW

The Rand has strengthened tremendously against major pairs this week, ahead of U.S inflation today. The Core CPI will be key for next week’s FED interest rate decision. Dollar weakness has been seen across the board and we are yet to see how investors digest inflation data.

U.S AND SA MARKETS

The U.S has investors keeping a close eye on them as we are expected to see their inflation data reports today, which is arguably the most important data release of the week. This will be a key for the Feds interest rate decision next week 15th June 2022. U.S Treasury Secretary Janet Yellen has warned that the U.S could see long periods of elevated inflation amid global growth concerns. Inflation is expected to cool off in May however some experts anticipate that it could remain unchanged at 8.3%. Inflation still remains at a 40-year high in the U.S.

The U.S also released their initial jobless claims data yesterday which was rather displeasing to investors. Initial jobless claims increased from 202,000 to 229,000. Although the jobless claims increased, it remains around the lowest level since 1970.

The IMF has cut its global growth outlook and it is expected that they could most likely implement further growth cuts as inflation continues to take economies out and feed in to the fears of Stagflation and recessions. The IMP will be releasing their next growth forecast in July and GDP will likely be decreased for a third time this year. This gives us a clear indication of how the world is heavily affected by the war in Ukraine and the new pandemic of Inflation.

Locally, President Cyril Ramaphosa held an address at the National Assembly on the Presidency Budget Vote and he touched up on poverty, electricity generation, rising fuel and commodity prices and the effects of the COVID 19 pandemic on the people of South Africa. Furthermore, the President stated that the 4th South African Investment Conference raised investment pledges to the value of R332 billion.

Technically:
For the past 4 weeks, the USD has been trading in a bearish trend with the Rand strengthening against the Dollar by 40 cents this week alone. We started Monday on a high note of R15.56/$ and saw a low yesterday of R15.16. The Dollar gained strength against the Rand yesterday afternoon, jumping from R15.16/$ to today’s open of R15.50/$. After the stronger move this last week we could expect the USDZAR pair to do a 50% retracement to R15.75%. However, if the Inflation data from the U.S is good, the pair could do further extend and we could see a high of R15.85.

european markets

The ECB released their Monetary Policy statement yesterday and gave us an indication as to what their next move will be for their next interest rate decision in July. The ECB’s rates remained unchanged at 0% however, they have made it clear that they will be hiking rates by 25 basis points next month, which will be their first hike in 11 years. ECB President Lagarde mentioned that the ECB may likely join the 50 basis point band-wagon around September. The ECB has also confirmed that they will start ending its long-running bond-buying scheme effective at the start of next month

The Euro has taken drastic losses from the start of the war in Ukraine and the Eurozone is battling with record high inflation  of 8.1% and very slow economic growth.

President Zelensky of Ukraine has raised a warning that their people may experience a difficult winter to come amidst the war with Russia. He re-iterated that Ukraine will not be selling gas and coal abroad, and that “all domestic production will be directed to the internal needs of Ukraine’s citizens”

Technically:
The EUR remains volatile in the markets as the EU economy battles to recover from the war and stagnant inflation. The EUR is currently weaker than the Rand and we anticipate that the pair will trade within the range of R16.50 to R16.85, however, should the ZAR strengthen further, we could potentially see around R16.40. The EUR/ZAR pair is facing pressure as it moves in a flag formation per our graph below.

uk markets

The British Prime Minister Boris Johnson has been cornered to alleviate the cost of living for the British people by cutting down on taxes in order to save his debilitating premiership, and he has pledged to deliver tax cuts “once the economic outlook has improved”.

Fuel woes increase as it now costs an average GBP 100 to fill up a tank, as there is a shortfall of global oil supply and shocking oil prices of Brent Crude Oil soaring around USD 120, and it has been reported that it is forecasted to rise to around $145 to $150.

A record of 2 million people are estimated to be suffering from COVID 19, and it estimated to further increase when the U.K goes to winter in the month’s to come.

Technically:
The Pound sterling was bearish against the Rand this week, having had a high of R19.45 on Monday, and posted a low of R18.98 on Thursday. Despite the strong drop, the sterling made up most of the week’s losses yesterday against the Rand as the GBPZAR soared back up from R18.98 to R19.41 yesterday evening. Today we opened the market at R19.37.

Technical levels we are watching for the week ahead: