A subdued Asia session with most G10 currencies range trading, content to let Asia stock markets take most of the heat after a soft Wall Street close last night. The exceptions being GBP/USD and USD/ZAR.
Spiked this morning from its lows this morning at 1.2100 to 1.2325 before falling to 1.2240 before settling higher at 1.2310 into early Europe. Just another day in Sterling at the moment. The catalyst was a report that the British Prime Minister, Theresa May, had in effect “blinked” and would allow Parliament to debate and vote on her Brexit plan. (whatever that may be)
A few key points to note here are
- She expects Parliament to not attempt to block Brexit.
- That Parliament doesn’t undermine the aforementioned initial negotiating position.
My initial reaction to this is the it will be the EU that sets out the initial negotiating position and not the UK. I also suspect that negotiating position will not leave much room on the UK’s part for negotiation! Nevertheless the street took this as bullish as it felt Parliament may somehow soften the UK’s Brexit stance from a hard to a soft one.
The price action probably has more to do with illiquidity and the extreme short positioning out there more then anything else. It highlights just how headline driven trading the GBP will be in the months to come.
The daily chart still has the RSI at extremely oversold levels. Although the MACD has yet to turn up. Technically tranline resistance doesnt come in until the 1.2850 area. (See chart below) This leaves a lot of room for GBPUSD to squeeze higher and still be in a downtrend.
Short term there is clear support now at 1.2100 with resistance at the days highs at 1.2325.
More trevails overnight with the South African Finance Minister being charged with theft and fraud, relating to his time as Head of the Revenue Service. (the unfortunately named SARS)
Even before this had come out the previous weeks trading had seen USD/ZAR track steadily higher on a stronger USD and expectations of higher US rates. As the announcement hit the wires USD/ZAR leapt from 13.8500 to 14.4350 before settling around 14.30000 on profit taking in early Europe.
Johannesburg have wasted no time on their arrival though and have continued to buy USD/ZAR. The perception in South Africa is that this indictment of a highly respected Finance Minister is political in its nature. There is an even greater fear that this will be the final straw for the ratings agencies who will down grade South Africa’s debt to “junk” status.
Certainly the market has voted with its feet. The Rand breaking through the Ichimoko Cloud at 14.3800 with ease. (this held exactly at 14.4350 yesterday) We have resistance at 14.4835 today in the shape of the 200-day moving average and then 14.59000 previous daily high.
Support comes in at 14.2700 the daily low and then 14.1550 the bottom of the Ichimoko Cloud.