It was quite the week in terms of hard data releases. The data prints that dominated the calendar last week were weaker than expected 2Q2023 US GDP results, US core PCE price index which was in line with expectations and a stronger than expected US non-farm payroll print. The data points from the US dealt a blow to the soft-landing narrative from the Fed and in fact, highlighted more signals of a stagflationary environment.
The dollar ended the week on the front foot following the results of the US PCE and non-farm payroll prints while the US 10-year bond yields held onto levels above 4.10%. Additionally, the EU released their CPI figures for the month of August which came in at 5.3% year-over-year, unchanged from July.
It is a relatively quiet week on the data calendar with the headlining events consisting of the latest Chinese CPI figures. The week will start off sluggishly with the US markets being closed for Labour Day tomorrow. In terms of local data, the latest SA GDP figures for the 2Q2023 are expected to print a year-on-year growth rate of 1.1%, up from 0.2% in the 1Q2023.
Jumping straight into the charts, we have the DXY. The dollar was resilient last week and managed to pull back all its losses from the week on Thursday and Friday following the strong US non-farm payroll results. The 200-day MA held support for the dollar index and another leg higher towards the yearly high of 105.93 looks imminent. The DXY is however trading near overbought zones according to the RSI indicator and the first line of resistance for continued dollar gains sits at 104.50.
Riskier assets were afforded some breathing room off the back of the decline in US bond yields which helped ease risk-off investor sentiment. The S&P 500 managed to break above its 50-day MA at $4,470 last week. The 50-day MA will now switch from a resistance to support and a break back below this support level will see the index slide lower towards the 23.6% Fibonacci retracement level of $4,345.
Core commodities are gaining off the back of the resurgence of crude oil and it is evident by looking at the CRB core commodity index. The CRB has broken above a key resistance level of 282.85 and a move higher towards 300.00 seems imminent. Gains in core commodity prices could be rand-positive as we head into the last quarter of the year.
While we’re on the topics of commodities, UK Brent crude oil managed to break above the resistance at $88.50 per barrel. Technically things are looking bullish for crude given that the 50-day MA has crossed above the 200-day MA which is referred to as a golden cross. The next leg higher will see crude test $93.80 per barrel.
The rand has been a tough nut to crack. The weak SA budget figures that were released last week strengthened the 50-day MA support level at 18.50 which is rand negative. We originally predicted that the pair would break below this level, but the broad-based dollar strength is keeping the rand’s recovery at bay. For now, the crucial levels to watch are 18.96 and 18.50. A break above 18.96 will allow for a re-test of the August high of 19.30 while a break below 18.50 will give the rand some room to breathe towards the 200-day MA at 18.15.
