Last week was a relatively quiet week on the data front. Fortunately for us locals, the latest SA GDP results for 2Q2023 made for some relieving reading. SA GDP grew more than expected at a rate of 1.6% year-on-year, up from 0.2%, in the second quarter. The standout sectors were mainly the export sectors namely manufacturing, agriculture and mining and quarrying which grew 2.2%, 4.2% and 1.3%, respectively in the quarter.
The dollar’s dominance continued last week which saw the DXY post gains for the eighth consecutive week and all eyes will be on this week’s inflation figures from the US. The US CPI figures for the month of August are expected to rise to 3.6% year-on-year, up from 3.2% in July. A rise in US CPI figures will signal that the Federal Reserve’s “fight against inflation” still has a few rounds before the final bell. Markets were hoping that inflation would be down for the count which would mean that an end to the current rate hiking cycle may be in sight, but it seems as though inflation won’t hit the canvass just yet. The other major event for the week is the ECB’s latest interest rate decision. Expectations are for the ECB to leave their deposit facility rate unchanged at 3.75% for September. The euro, and other major currencies, have been on the ropes against the dollar and an unchanged rate decision from the ECB doesn’t seem like it will lend much support to the ailing euro.
Jumping straight into the charts we have the dominant DXY. The DXY is on the back foot in the early hours of the Asian session this Monday morning, but the upward trend still seems strong. This week’s US CPI and the ECB rate decision will be the leading market movers if there are no surprises from these two events the DXY will be allowed to inch its way higher toward the yearly high of 105.95 if it manages to hold levels above the 50% Fibonacci rate of 104.65. The technical indicators are however suggestive of a possible pullback. The RSI has made a U-turn in the overbought zones while the buy signal on the MACD indicator is rolling over.
Looking over at our beloved rand, the rand managed to post daily gains at the back end of last week following the SA GDP data prints. The pair gapped down aggressively at the Asian market open this morning and a test of the 61.8% Fibonacci rate at 18.96 is on the cards. This rate is critical, a break below this rate will allow the rand for some breathing room towards 18.66. A failed break below 18.96 will however see the pair climb and re-test the resistance at 19.36. For now, however, it looks like the pair is in the early stages of another 5-wave impulse pattern which could see the rand slide closer to 20 rands to the dollar.
The SA top 40 index has been licking its wounds after another strong sell-off last week. The index is trending lower and a break below R67,500 will see the index drop into the red support range at R66,400. The weak commodity price environment is weighing on the index and the weak rand is also not doing the index any favours. In terms of technical indicators, we have what is referred to as the “death cross” where the 50-day MA crosses below the 200-day MA.
The S&P500 managed to post some gains at the back end of August but the first week of September saw the index slide back below the 50-day MA level of $4,478. A failed break above the 50-day MA will see the index slide lower towards the 23.6% Fibonacci level of $4,345.
Moving over to commodities, UK Brent crude extended its gains and managed to break above the resistance rate at $88.50 per barrel, last week. A move higher towards the 38.2% Fibonacci rate of $96.06 pb is on the cards if crude remains above $88.50 pb. The RSI indicator is however trading deep in the overbought ranges which could dampen oils momentum.
