Technical Analysis EUR/ZAR: May 27, 2019
The South African Central Bank may cut the rate at its next meeting in July
The South African Reserve Bank kept the rate unchanged at its last meeting on May 23, but noted the possibility of its reduction in the future. Will the EUR/ZAR rise?
Such a movement is observed in case of the strengthening of the euro and weakening of the South African rand. The rate of the South African Reserve Bank is 6.75%, which is noticeably higher than the 4.4% inflation. The regulator is considering the possibility of a rate cut in order to maintain the economic growth in South Africa. This can have a negative impact on the exchange rate of the rand. The South African Reserve Bank lowered its forecast for the GDP growth in South Africa in 2019 to 1%, while in January it expected + 1.5%. In turn, the euro strengthened amid the resignation of British Prime Minister Theresa May and the defeat of the Euroskeptics party in Denmark at the European Parliament elections. Amid the worsening of the US-China trade war, the European currency may become more attractive for investors.
On the daily timeframe, EUR/ZAR: D1 approached the upper boundary of the long-term triangle. Before opening a buy position, it should be breached up. A number of technical analysis indicators formed buy signals. The further price increase is possible in case of a slowdown in the growth of the South African economy and the strengthening euro.
- The Parabolic Indicator gives a bullish signal.
- The Bollinger bands® have narrowed, which indicates low volatility. Both Bollinger bands are tilted upward.
- The RSI indicator is above 50. It has formed a positive divergence.
- The MACD indicator gives a bullish signal.
The bullish momentum may develop in case EUR/ZAR exceeds the resistance line of the long-term triangle, the two last fractal highs, the 200-day moving average line and the upper Bollinger band at 16.3. This level may serve as an entry point. The initial stop loss may be placed below the last fractal low, the Parabolic signal and the lower Bollinger band at 15.8. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level (15.8) without reaching the order (16.3), we recommend to close the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
Position Buy
Buy stop Above 16.3
Stop loss Below 15.8
Market Overview
US stocks end the week on a positive note
Dollar falls on durable goods orders decline
US stock market ended marginally higher on Friday in thin trading after back to back losses. The S&P 500 added 0.1% to 2826.06, extending losses 1.2% for the week. Dow Jones industrials rose 0.4% to 25585.69. The Nasdaq gained 0.1% to 7637.01. The dollar weakening continued as orders for durable goods fell a below expected 2.1% in April. The live dollar index data show the ICE (NYSE:ICE) US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, lost 0.3% to 97.552 but is higher currently. US markets are closed today for Memorial Day holiday.
CAC 40 outperforms European indexes
European stocks recovered some of the previous session losses on Friday. The GBP/USD joined EUR/USD’s climb with Pound higher currently while euro resumed sliding. The Stoxx Europe 600 Index recovered 0.6% Friday led by mining stocks. The DAX 30 added 0.5% to 12011.04. France’s CAC 40 rose 0.67% and UK’s FTSE 100 gained 0.65% to 7277.73 as Prime Minister Theresa May announced that she would resign as party leader on June 7.
Shanghai Composite leads Asian indexes gains
Asian stock indices are mixed today. Nikkei gained 0.3% to 21182.58 as President Trump met with Prime Minister Abe to discuss trade and other world issues after meeting Japan’s new emperor, Naruhito, while yen’s decline against the dollar resumed. China’s markets are mixed: the Shanghai Composite Index is up 1.4% while Hong Kong’s Hang Seng Index is 0.2% lower. Australia’s All Ordinaries Index slipped 0.06% with the Australian dollar little changed against the greenback.
Brent down
Brent futures prices are pulling back today. Prices ended higher on Friday: Brent for July settlement added 1.4% to close at $68.69 a barrel Friday, falling 4.9% for the week.