WEEKLY MARKET OUTLOOK: 24 JULY 2023

Last week was a reliever for our fellow South Africans following the SARB’s decision to hold the repo rate at 8.25%. Additionally, the annual local headline inflation cooled to 5,4% in June from 6,3% in May, sinking below the upper limit of the South African Reserve Bank’s monetary policy target range for the first time since April 2022. Annual transport inflation tumbled from 7,0% in May to 1,8% in June, thanks to softer fuel prices. The UK and Euro-zone also released their most recent CPI figures which came in at 7.9% and 5.5%, year-on-year for June. These high inflation figures place the pound and euro under pressure. 

The week ahead will be a volatile one, with all eyes on the USA. Three key events are on the calendar. First, is the US Federal Reserve (Fed) interest rate decision on Tuesday. Markets are anxiously anticipating the Fed to hike by 25 basis points which will see the Federal funds rate rise to 5.50%. On Thursday the latest US GDP figures for the 2Q2022 are expected to come in at 1.8%, quarter-on-quarter. The week will be closed out with t updated US core Personal Consumption Expenditure (PCE) Price index. It’s important to note that the PCE price index is the Fed’s preferred inflation indicator, not the Consumer price index (CPI).

The first chart for the week ahead is the DXY. The dollar bounced higher last week, and a Fed hike coupled with strong US GDP results could allow the dollar to push the DXY higher towards the 50-day MA of 102.70. The technical indicators are also suggestive of a strong move higher for the dollar. 

It was another good week for the rand which showed resilience against the major currencies following the SARB’s decision to leave interest rates unchanged. If the dollar strengthens across the board this week, the rand will undoubtedly feel the heat which will strengthen the 200-day MA support rate of 18.02. A bounce off the 200-day MA will see the pair climb higher towards 18.30. A break above 18.30 will put the 50-day MA of 18.77 in the crosshairs. A failed break above 18.02 will however allow the rand to re-test 17.70. The technical indicators are pointing to a rand that is running out of momentum. The MACD is rolling over and the RSI is trending higher after touching the oversold range. 

The S&P 500 is also showing signs of rolling over in overbought ranges. A pullback from here will see the index drop to $4,400 and deeper support at the 50-day MA rate of $4,330. 

Similarly, the local JSE is showing signs of fatigue around the 50-day MA of R71,237. A re-test of the 200-day MA at R69,330 is looking likely. 

The commodity to watch for the week will be Brent crude. Crude has found strong support at $78.00 per barrel and a break above the 200-day MA price of $81.83 will allow oil to climb higher towards the $85.00 – $87.00 range.

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