The markets will be off to a slow start this week with the celebration of the US Independence Day, the 4th of July. This means US markets will be closed on Tuesday as well as a half-day tomorrow. Despite the rather quiet start to the week, it is expected to be a volatile one. A host of manufacturing PMI results will be released this week in the lead up the highly anticipated FOMC (Federal Open Market Committee) minutes on Thursday and the customary US non-farm payrolls print on the first Friday of every month.
Last week central bankers gathered in their echo chamber at the ECB Forum on Central banking where they continued to beat the drum of persistent inflation which reinforced the current hawkish stance central bankers are taking. Thursday’s FOMC minutes will most probably support the Federal Reserve’s hawkish stance. On a light note, we got a good meme from the Forum after ECB president Christine Lagarde blamed the current persistent inflation environment on nothing other than climate change. No fingers were pointed at the possibility of a monetary policy mistake from excessive money supply inflation by the central banks from the past three years, obviously.
In terms of data prints, the US released a host of uplifting economic results. Market sentiment was particularly boosted by two key results, the US GDP print, and the core PCE price index (the Fed’s preferred inflation measure). The US GDP print for 1Q2023, came in at 2.0% quarter-on-quarter versus the expected print of 1.6% while the core PCE price index for the month of May came in slightly lower than expected at 4.6%. In terms of local data prints the PPI results for the month of May came in higher than expected at 7.3% year-on-year, down from 8.6% in April along with the updated SA trade balance. SA’s trade balance (the difference between the value of exports and imports) is currently sitting at R10.2 billion rand, up from R3.97 billion.
Let’s move our attention to the charts. The DXY is still dancing with its 50-day MA and Friday’s soft PCE price index results saw the dollar give back some of its gains from earlier the week. The 50-day MA, at 103.780, held support while the 50% Fibonacci retracement level of 103.320 capped the dollar’s gains. The dollar’s direction will be dictated by the FOMC results and Friday’s non-farm payrolls print and until then, I suspect we will see range bound price action between the above-mentioned levels. In terms of technical indicators, the daily MACD is currently holding a buy signal while the RSI is still trending higher which has me favouring a break above 103.320 and a move higher towards the 61.8% Fibonacci retracement level of 103.930 over a break below the 50-day MA support. A break below the 50-day MA will however see the index drop onto the black upward trendline at around 102.350.
The stock market finished last week with an aggressive push higher off the back of the positive USdata prints. This allowed the S&P500 to climb back above the black trendline. The technical indicators are still suggestive of an overbought market in equities while the MACD is looking set to cross over to a buy signal. I’m honestly still expecting a move lower towards the 50-day MA support rate of $4,226 over the near-term and hopefully the expected volatility from this week’s events could kick-off this move.
Similarly, to the strong move higher in the US markets, the JSE all share index also put on noticeable gains after closing the week roughly 2.50% higher. For now, the index remains in a tight range between its 200-day MA at R68,456 and the 50-day MA at R71,688. Technically, a break above R71,688 seems like the most likely next move. The MACD index looks set to cross over to a buy signalwhile the RSI is trending higher with loads of room to move before entering overbought zones.
Rounding off this week’s chart pack is our beloved rand. The rand closed the week roughly 7 cents weaker against the dollar after sliding to 19.04 against the dollar on Friday. The rand was boosted by the risk-on investor sentiment at the back end of the week which allowed the rand to keep the pair below the imperative 50-day MA rate of 18.82. The pair is however forming an upward channel which could allow the pair to break above the 50-day MA resistance rate. The rand’s moves will be dictated by how market participants digest the data from the US. Technically the MACD indicator is holding a buy signal while the RSI still has room to move before entering overbought zones and a break above the 50-day MA will allow the pair to test the 23.6% Fibonacci retracement level of 19.10. On the flip side, a failed break above the 50-day MA will allow the rand to pull the pair on to the support rate of 18.61 and possibly lower towards 18.45.
