ZAR/JPY Wobbles!

ZAR/JPY perched uneasily on support ahead of Municipal elections.

Tomorrow sees South African’s vote in local elections. Although the elections themselves are at a local level, what will be watched closely by South Africans and international investors alike, is the voting pattern. The ruling ANC since the end of apartheid has polled consistently above 62% at all levels. Dissatisfaction with President Jacob Zuma’s rule and the economic management of the country has been increasing.
A large swing against the ANC will give impetus to the reformers inside the ANC who will be casting a nervous eye towards the 20149 Federal Elections. It will also be looked at positively from an economic standpoint as it will be no doubt give a fillip to reformists both within and without government.

Conversely, a better than expected ANC result would have the opposite effect. President Zuma’s power will be perceived as consolidated, and much-needed reforms will be much less likely to happen. Expect investors to take a dimmer view of the 2nd outcome as well and possibly see the ZAR come under pressure. (USD/ZAR higher)

This uncertainty is unfortunate in its timing for long-suffering carry traders. Coming as it does after a disappointing reaction to both the BoJ decisions and a tepid response to the LDP’s stimulus package. JGB’s had a strong sell off yesterday, and the rising yields along with the above has seen USD/JPY sold hard over the week. Touching 100.60 this morning in Asia.

This has put downward pressure on one of the favourite carry trades out there, ZAR/JPY, which today is sitting on both weekly and daily support.

Weekly support comes in here at 7.1860 which is a previous multiple high/low line (Denoted by the red dotted line). A weekly close under here opening up a move to the next support 6.9150 from a technical perspective.

ZARJPYWeekly

Things are much better on the daily chart either with ZAR/JPY having broken the 200 day simple moving average (DMA) at 7.2810 and sitting just above the 100 DMA at 7.1760. A daily close below here opens a test of the top of the Ichimoku Cloud at 7.0915. Resistance is at 7.2810 (the 200 DMA) and then a well entrenched multiple daily high on the candles at 7.4450.

ZARJPYDaily

What is undoubtedly clear is that the next 48 hours will be nervous ones for carry traders on this cross! Confluent events are coming together in rather unfortunate timing.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley
Based in Singapore, Jeffrey has over 25 years experience in the financial markets, having traded currencies, options, precious metals and futures. Jeffrey started his career at Barclays Bank in New Zealand. However he has spent most of it in London and Asia.Jeffrey focuses on the Asia time zone across asset classes. A regular commentator on business news TV and Radio, he is originally from New Zealand and holds an MBA from Cass Business School, London.