Yesterday the South African Rand traded at its weakest level since President Zuma’s surprise sacking of the Finance Minister about 4 weeks ago. Though the move was largely driven by a broadly stronger USD on the back of global risk-off sentiment, it was exaggerated due to a lack of local liquidity in the market. The first week in January is notoriously slow trading and liquidity usually only recovers in the second week when most corporates return from their annual vacation.
What was interesting about yesterday’s move was that, though the high on the day was around 16.20, the market closed at 16.0670 – aligned with the previous high achieved on the spike up to 16.0616 back in December.
The market is currently trading at 15.94 and a test of 15.89 is likely. This is particularly interesting if one considers that the latest trade balance figures showed a remarkable improvement, and given an expected introduction of exported liquidity (local corporates selling USD), one could see the currency strengthen in the short term.
The spread between the 20 and 50 SMA is at its highest in over 2 years (+/- 70c), and one could expect some sort of convergence to take place in the short term.
The RSI is in oversold territory and I would also keep a close eye on the ADX. It has been upward sloping without any change since the 4th of December. The first negative print should put attention on a possible move lower. The last time similar conditions were president, once the ADX turned the Rand appreciated by around 30c.