Over last couple of days quite bad news hit Greece, Portugal and Spain. Their long term debt was downgraded and that caused markets to stumble. Yesterday Top40 recorded biggest single day drop in more than 6 months and today’s picture does not look great either.
Last time when big news hit the market, big guys were quick enough to sell off all risky assets like emerging markets and that caused Rand to collapse. From August 2008 to October 2008 Rand dropped from 10.90 to 15.20 for US$. Is this happening again?
Two charts are shown on the top: First one is USDZAR, while the second one is EURZAR, both in 4 hours time frame.
USDZAR is currently trading in 7.20-7.85 range and that is going from August 2009. From March 2010 new and smaller range between 7.20 and 7.50 was developed. We tested top of the range four times and bottom three times. Those are two levels to watch. If 7.50 gets broken USDZAR will go to 7.85. However, if 7.20 gets broken we could see 6.50 or there about.
EURZAR is still in the channel which started in November 2009 and top trend line was just tested. Support was formed around 9.67 in early April and currently we are close to test it. Breakdown will be significant and EURZAR could drop further towards 9.30. With all instability in Euro zone this can be likely scenario.
All in all, those two charts do not show foreigners disinvesting from SA and such disinvestment would cause ZAR to weaken.
Trade with trend!