Hop, skip and jump…
The major stock indices hopped higher, the Federal Reserve (Fed) skipped a rate hike, and the rand jumped another 2.85% against the dollar last week. The headlining event for the week was the “Fedpause”. The Fed opted to pause their rate hikes to keep the Federal Fund rate at 5.25% after the most recent FOMC meeting. This marks the first FOMC meeting, since the start of the hiking cycle in March 2022, where the FOMC voted against additional rate hikes. Additionally, the latest US CPI results for the month of May came in lower than expected at 4.00% y-o-y, down from 4.90% in April.
The soft US CPI results coupled with the Fed decision spurred risk-on investor sentiment. Looking over the Atlantic, the European Central Bank (ECB) however raised their interest rates to 4.00%, up from 3.75% as inflation remains high in the Euro zone. The latest CPI results from the Euro zone came in at 6.10%, y-o-y for the month of May. The economic calendar is quieter this week compared to last week. The headlining event for this week is the Bank of England’s interest rate decision and the market will look for further insights regarding the Fed pause when Fed chair Powell testifies before Congress on Thursday.
Let’s start this week’s segment with the rallying Rand which benefitted exponentially from the global risk-on investor sentiment last week. The local unit managed to pull the USD/ZAR pair below the 50- day MA support rate last week and it is approaching the 200-day MA support rate of 17.95. The rand has now appreciated almost 8% over the past two weeks which has placed the USD/ZAR pair in oversold territory. The daily RSI indicator hit the oversold zone on Friday and the sell signal on the MACD indicator is fizzling out which will undoubtedly bolster the support rate of 17.95.
The first resistance rate to watch sits at 18.50 and a break above this rate will allow the pair to test the 50-day MA rate of 18.75 which has now switched from a support to a resistance. It is worth noting that strong local data prints last week also assisted the rand’s recovery. SA gold production pumped in April which saw the sector record a y-o-y growth rate of 27.4% in April, up from 21.6% in March. In
aggregate mining production climbed 2.3% in April, y-o-y, up from negative growth of 2.2% in March. Turning our attention to the USD/ZAR chart, I’m expecting strong support around the 200-day MA which will allow the pair to inch higher and test the resistance rate of 18.50 this week.
The rand’s recent strength has lent a hand to the recovery of the JSE all share index which has allowed the index to break above the 50-day MA of R72,100 last week. The index is currently holding a buy signal on the daily MACD, and the RSI has room to move higher before hitting overbought zones which may allow the index to break above the red downward trend line.
The dollar had a tough week at the office across the board which saw the DXY fall through the 50-day MA support level. The DXY caught some support at 102.00 which could allow the index to re-test its 50-day MA, currently at 103.600.
In terms of US indices, the SPX continued to push higher which allowed it to break above the upward trend line. The index is however in highly overbought territory according to the RSI indicator which could force a pullback lower towards $4,260.00.
