GBP/ZAR is back under pressure having topped out at the 18.00 barrier.
Traders are calling time on the long GBP/ZAR trade it would seem with the inability to break above the 18.00 resistance point apparently helping their decision.
The Pound has for two days tried to clear this level but found the supply of Sterling to great.
The technical considerations have combined with the return of the Brexit theme on Tuesday November 15th to push GBP/ZAR back down to 17.50.
News that the UK Government has no unified strategy ahead of Brexit negotiations has caught the attention of traders once more and we could now see the GBP/ZAR pair slip back into recent ranges.
Sterling had been allowed higher over recent days amidst emerging market weakness due to fears of the impact of Trump’s policies on global inflation and bond yields.
The sudden outflow of investor capital from emerging bond markets, South Africa (SA) included has led to the recent weakness in the Rand.
Outflows from SA bonds reached an almost record 5bn on each of Thursday and Friday last week, according to Rand Merchant Bank’s John Cairns.
But Cairns thinks the sell-off will be short-lived and the Rand will recover in a few days’ time.
“While the above should make it clear that we think the bias is for rand weakness early in the week we, nevertheless, do not think that the Rand will hold the losses.
“The extent of Rand losses already seems large relative to the moves in treasury yields.
“Also, don’t forget the silver lining from the surge in commodity prices.
“In all, give the markets a day or two, and we think USD/ZAR will start to recovery again.
“We expect 14.00 by the end of the week,” concluded Cairns in a recent note.
Sterling benefited from large repatriation of currency from emerging markets as the trade extended to the UK.
It also caught a bid on the belief that a decent trade deal could now be struck with pro-Brexit Donald Trump once the UK leaves the European Union.
Tech Outlook for the GBP/ZAR
The GBP/ZAR pair is showing signs of more upside after breaking above a major trend-line of the move down and the 50-day Moving Average (MA).
The bullish bias to the charts is further enhanced by the occurrence of three bullish Japanese candlestick patterns in quick succession at the end of last week (circled on chart below).
The former two are represented on the chart by two blue dots with P’s written on them.
The fact they have all occurred together within a few days of each other reinforces their individual signals and increases their bullishness.
More upside is expected as the young up-trend thrusts higher.
A break above the current highs at 18.2700 would probably indicate an extension up to resistance at 18.4000.
Data for the Rand this Week
The main data of consequence for the Rand will be the testimony of Fed Reserve Governor Janet Yellen to Congress, at 15.00 (GMT) on Thursday November 17.
If she adopts a decidedly more hawkish tone in line with current expectations which put the probability of a December rate hike at 90%, then this will probably weigh on the Rand.
US Core Inflation released at 13.00, also on Thursday, may also impact if it comes out higher-than-expected in October.
The Rand has lost ground because of the victory of Donald Trump, like most emerging market currencies.
There are fears his rhetoric of protectionism will inspire high trade tariffs which will make trade difficult for many emerging market (EM) countries who export to the US.
Higher US bond yields are also expected to tempt investors back to the US to invest in them, rather than the higher yielding but riskier EM bonds which were fashionable recently when many developed market bonds yielded below zero (investors had to pay to lend).