The economic calendar is stacked with events this week, and markets anxiously await the latest interest rate decision from the Federal Reserve (Fed) on Wednesday. This is arguably the most important rate decision since the Fed started hiking in 2022 and the consensus in the market is for the Fed to pause the hiking cycle. A pause will see the Fed leave rates at 5.25% instead of hiking by another 25 basis points. Markets will however first have to digest the latest US CPI results on Tuesday. Standing in the Fed’s shadow is the European Central Bank which will also release its latest interest rate decision but unlike its counterpart, the ECB is expected to hike rates 25 basis points which will push eurozone rates up to 4.00%.
Summary:
- The rand managed to gain just over 4% on the dollar which pulled the USD/ZAR pair all way onto the 50-day MA support rate of 18.69
- The rand is expected to hit strong resistance in the range between 18.69 and 18.60 and a failed break below the 50-day MA could see the USD/ZAR pair climb back higher towards 19.00
- Brent crude oil gapped up at the market open last Monday after Saudi Arabia’s decision to cut oil production but Brent still ended up closing the week almost 4% lower at $74.82 per barrel (PB).
- The decision will see the country’s output drop to 9 million barrels per day (BPD) in July, down from around 10 million BPD in May, the biggest reduction in years
- Turning our attention to the US indices, the S&P 500 and Nasdaq are technically looking overbought, and their momentum has stalled.
First up on the chart list for the week is the rand. The rand managed to gain just over 4% on the dollar which pulled the USD/ZAR pair all way onto the 50-day MA support rate of 18.69. The rand was boosted by positive local data prints which included a strong manufacturing production print of 0.5% of growth in April and a significant reduction in the current account deficit. The current account deficit fell to R66.52 billion in quarter one of 2023 (1Q2023), down from R155.3 billion in the fourth quarter of 2023 (4Q2023). The rand is expected to hit strong resistance in the range between 18.69 and 18.60 and a failed break below the 50-day MA could see the USD/ZAR pair climb back higher towards 19.00.
The DXY is in for a volatile week which could see the DXY fall onto its 50-day MA level of 102.506. The crucial level to watch is 103.300 and a break below this support could see the DXY fall lower. It all depends on how markets digest the rate decisions from the two largest central banks. Technically there is a sell signal on the daily MACD indicator which has me leaning towards a deeper pullback for the DXY over the near term.
Brent crude oil gapped up at the market open last Monday after Saudi Arabia’s decision to cut oil production but Brent still ended up closing the week almost 4% lower at $74.82 per barrel (PB). The decision will see the country’s output drop to 9 million barrels per day (BPD) in July, down from around 10 million BPD in May, the biggest reduction in years. OPEC+ has just about tried every production cut option available but the threat of a global recession is keeping the lid on any gains in the price of crude. Technically a failed move higher towards the 50-day MA, currently at $78.50 pb, will see the price per barrel drop back to $70.
Turning our attention to the US indices, the S&P 500 and Nasdaq are technically looking overbought, and their momentum has stalled. I’m expecting a re-test of the support rate at $4,250 and a break below this level will see the index pull back deeper onto the 50-day MA rate of $4,150 for the S&P 500.
As for the Nasdaq, the A.I mania has settled down and the index is expected to pull back and test $14,200. A break below this support could see the index fall lower towards $14,000.
1 The current account records a nation’s transactions with the rest of the world (specifically its net trade in
goods and services, its net earnings on cross-border investments, and its net transfer payments)
