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Forex and Political Sentiment Moving the South African Rand

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Forex and Political Sentiment Moving the South African Rand

Recent trading in the USD/ZAR has become bearish and highlights the behavioral sentiment shifts taking place within South Africa, this as outlooks and perspectives create opportunities for financial institutions and speculators.

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USD/ZAR One Month Chart as of 20th June 2024

South Africa politics have generated optimistic selling of the USD/ZAR in the past week and a half as the ANC has agreed to a National Unity Government coalition. Financial institutions pulled the USD/ZAR higher and to the 19.00000 realm in the second week of June as concerns grew the African National Congress could decide on a hard-left coalition in the nervous days following the election results. But those fears disappeared when it became clear the ANC would actually undertake a working association with the Democratic Alliance. The USD/ZAR began to selloff. Yesterday’s ability to test values below the 18.00000 level highlight the price velocity that optimistic outlooks have generated the past handful of trading days. Not all of South Africa’s problems are going to vanish magically, but there is a hope that better days are ahead.

As simplistic as it sounds, financial institutions trade based on their outlooks and they take an approach with much longer timeframe considerations compared to day traders. In a sense the price of the USD/ZAR isn’t a reflection of what is, it is a mirror of what can be. The trend lower will now run into a test as financial institutions question the move lower that has been attained the past week and a half, compared to realities which still have to be handled per the existing problems that remain. The African National Congress and Democratic Alliance aren’t natural bedfellows. They will certainly clash regarding fiscal transparency, day to day power sharing as the nation and municipalities are managed, and geopolitical alliances will be questioned.

While the USD/ZAR has definitively traded lower and is testing intriguing support, optimistic sellers who have a mid-term outlook will look at one year charts and know the currency pair has traded at significantly lower values in July of 2023. Day traders should not get overly ambitious, because it will be nearly impossible for most short-term speculators to hold onto a position longer than a day or two because of transaction fees most trading platforms charge for overnight positions. However, the notion that financial institutions will look at the lower values seen technically about eleven months ago, and consider the potential of ‘what can be’ might start to affect the USD/ZAR more over the coming weeks and months.

There are warning signs that need to be monitored, there is already talk among media outlets in South Africa that the ANC and DA are in disagreement regarding the working relationship they share and what type of influence will be allowed from the junior partners – which includes the Democratic Alliance and at least four other smaller political parties. Nothing is for free in politics. Power and the ability to govern will need pragmatic approaches by all members of the National Unity Government in order for it to remain viable. The coming days and weeks are sure to create headlines which will make financial institutions occasionally nervous and create support levels which sometimes look very durable.

Perhaps the best barometer for short-term traders of the USD/ZAR will be resistance technically which is tested in the coming days. The USD/ZAR is trading near the 18.14200 ratio as of this writing. U.S traders will be returning from their holiday celebrations yesterday and increase Forex volumes which could cause uneasy reversals. However, if the 18.20000 level proves to be durable resistance near-term, it may signal financial institutions may believe additional positive impetus will create more selling. Behavioral sentiment will remain nervous in South Africa, but if optimistic outlooks remain the USD/ZAR could move lower again. The search for equilibrium in the USD/ZAR is not over and the coming weeks will be worth watching.

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Concerns Ahead and a Potentially Noisy Week for Day Traders

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Concerns Ahead and a Potentially Noisy Week for Day Traders

In the wake of last week’s central banks follies, day traders have what may appear on the surface a rather comfortable week of economic data to consider as they make their wagers. However, there are outside risk events looming which will likely stir the emotions and positions of financial institutions, and cause knock on tremors that speculators feel caused by a noisy storm of experts and media pundits.

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SP 500 Index Three Month Chart as of 25th of Sept. 2023

U.S equity indices have struggled recently and this should be viewed as a barometer of current behavioral sentiment. Concerns regarding higher Crude Oil prices, and talk of a growing U.S political crisis as a government shutdown is threatened (remember next year’s election is shadowing all spectacles in Washington D.C presently) highlight the nervous state of affairs. The USD has been stronger and gold has remained under pressure in recent trading. Risk adverse trading is proving rather flavorful for the moment.

The ongoing strong rhetoric from the U.S Federal Reserve and what appears to be an almost certain interest rate hike in November is causing market sentiment to remain anxious. Financial institutions are not only lining up to buy U.S Treasuries, but money market funds are also being sought too which offer the ability to accumulate returns from higher interest rates. While cash is being parked in ‘sure things’ because financial institutions and large investors are keen on locking in ‘known’ returns (profits), this creates potentially less money supply for buying of U.S and global equities momentarily.

Troubling economic data continues to mire the terrain also for financial institutions, and the heightened fear is causing a reaction which day traders need to deal with as short-term volatility mounts creating dangerous speculative conditions. Consumers face a rather large bag of ‘troubles’ via higher mortgages, debt obligations on credit cards and student loans, and inflation costs. Yet, intriguingly the U.S economy has shown resilience which is almost perplexing.

Current behavioral sentiment appears fragile and ready to crack open into a chaotic storm if too much pressure is exerted. Day traders should be cautious this week because plenty of diatribes and warnings are sure to be heard. Unfortunately the warnings being heard now for this coming week could prove correct.

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EUR/USD Six Month Chart as of 25th Sept. 2023

Monday, 25th September, Germany Business Climate via Ifo – investors will keep their eyes on the sentiment reading from Germany which is expected to be worse than last month’s results. The EUR/USD is trading at six month lows.

Tuesday, 26th September, U.S CB Consumer Confidence – the result is anticipated to be slightly negative compared to last month’s outcome. U.S consumers have remained strong and financial institutions will want to see if they remain optimistic regarding their outlooks. The outcome could affect the USD, particularly if the number is weaker than expected.

Wednesday, 27th September, U.S Durable Goods Orders – this report could prove noteworthy via the broad and core reports. Durable Goods Orders are a relatively important barometer on U.S big ticket spending and demand. The numbers are likely to cause a rumble in U.S equity markets.

Thursday, 28th September, Germany CPI – the inflation results will be watched carefully by EUR/USD speculators. Higher prices in Germany are not welcome and a larger number than anticipated would be troubling.

Thursday, 28th September, U.S GDP – the Gross Domestic Product data from the States on Thursday will be closely monitored and likely provide impetus for Forex and major indices. If the growth numbers are stronger than expected this will serve as another nail for the U.S Federal Reserve to hit when it makes its case for another interest rate hike. While it is good the U.S economic growth numbers have been relatively strong, better than expected data could play into U.S Treasury yields remaining high and spark additional complex considerations for investors.

Friday, 29th September, Canada GDP – the data from Canada is expecting a negative ‘growth’ result which would have an affect on the USD/CAD.

Friday, 29th September, U.S University of Michigan Consumer Sentiment – the revised numbers will give insights into American spending habits. The previous two months have been more lower than anticipated, this outcome is expected to produce a reading of 67.7.

Saturday, 30th September, China Manufacturing PMI – while the Purchasing Managers Index reports from China are forecast to show slight improvements, analysts remain worried about economic conditions in the nation. Transparency remains a focal point for investors who want to make sure the results they are being given are accurate.

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Is the USD Bullish Surge Coming to an End?

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Is the USD Bullish Surge Coming to an End?

The long and brutal bullish trend the USD has exhibited against many other currencies could be coming to an end, as behavioral sentiment begins to suspect the U.S Federal Reserve will have to consider halting its interest rates hikes sooner rather than later.

PMI and Consumer Confidence statistics from the United States on Monday and Tuesday has heightened the perception that the U.S is within a recessionary cycle which the U.S Federal Reserve will have to act upon – by not acting. The Fed is likely to raise interest rates in November per their hawkish rhetoric, but the notion that the U.S central bank will then sit back consider the statistical landscape is growing. In other words a halt of hawkish policy appears to be a legitimate prospect after November.

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GBP/USD 1 Year Chart

If recessionary data continues to be exhibited in the U.S, the USD fundamentally could lessen its grip in Forex and allow other currencies begin to gain ground. The GBP/USD has been hit extremely hard – yes, this has had just as much to do with the political environment in the U.K which has resembled a three ring circus. The idea of tranquility within the U.K politically could help the GBP/USD move higher, the prospect of a less hawkish U.S Federal Reserve should help the British Pound also.

The EUR and JPY also may have the ability to gain within the EUR/USD and and USD/JPY as financial institutions begin to change their outlooks. Yes, the walls could crumble unexpectedly and another round of chaos could ensue which could cause a shockwave in Forex. However, if the U.S enters a recession which has to be officially recognized by the government and thus the Federal Reserve, the USD will be affected.

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EUR/USD 1 Year Chart

This is not written to suggest a weaker USD will bring upon a great fix for the ailing global economic outlook mid-term. But it is certain that a weaker USD which trends in a bearish manner may be rather interesting to retail traders looking to gain an edge via Forex speculation. Equity indices may continue to struggle if corporations report weaker than expected earnings, but the downward trajectory in many stocks also means that PE ratios are becoming more realistic and a potential buying opportunity for long term investors. Warren Buffett can be your imaginary friend.

It has been a dynamic year of results in Forex as the USD has created stark trends with the USD/JPY, USD/ZAR, EUR/USD, GBP/USD and the USD/INR. Results in Forex and their volatility have created trading opportunities for speculators that have been likely better than wagering on cryptocurrencies; Bitcoin and Ethereum continue to stagnate and wait for the next great upheaval.

The past year has seen major equity indices suffer stark losses. Traders who have a constant bullish perspective because being positive is part of the human psychology have likely suffered if they have tried to be day traders via CFD’s of equity indices on the buy side constantly. Choppy conditions in the stock markets may continue for a while. Certainly in the long term many indices will rebound upwards, but buying individual stocks with leverage in anticipation that widespread bullish momentum is going to be a constant remains a nervous bet.

Forex via a USD pairing is beginning to look opportunistic for speculators. Picking the exact time a true solid reversal is going to become a constant is difficult and dangerous. There are no guarantees that we have seen the lows for the GBP, the EUR and JPY along with others currencies versus the USD, but if the U.S is truly going to have to admit recessionary pressures are taking hold, this may have an impact on inflation as demand decreases which the Fed would react to.

Things can wrong, more war breaking out, viruses bursting forth can be transmitted, political upheavals are a possibility in various locales, but from a risk reward perspective perhaps we are drawing to a close regarding the dominance the USD has shown the past year.