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Forex Technical Trade Note Outlook - 07 August 2019


Global markets have been thrown into turmoil once again as the U.S-China trade war gains momentum with President Trump leading the charge. Global markets fell to the lowest point in 2019 on Monday, along with the U.S Dollar (USD).

Renewed Trade Disputes

So, in case you missed it last week, the renewed U.S-China trade negotiations did not go well, which saw Trump head to social media to show his dissatisfaction. President Trump then pledged a 10% tariff on the remaining $ 300 Billion worth of Chinese goods. The remaining $ 300 Billion worth of Chinese goods that have not received a tariff hike are consumer goods like toys and tech.

The Chinese responded, how you might ask? Not with a tariff hike but by letting the government weaken the Yuan. The Chinese government dictates how much Yuan each U.S Dollar is worth unlike the rest of the world where the free market decides how much a dollar is worth. This move by the Chinese has sent the Yuan to a low last seen a decade ago, and the United States is not happy.

The U.S Treasury Department, in turn, accused the Chinese of currency manipulation, which gave the spark that set off the abrupt market sell-off on Monday. This move by the Chinese has, in effect neutralized the tariff hike imposed by the U.S and added a new dimension to the tit for tat tariffs we have seen over the last couple of months.

The Dollar Index (DXY)

The U.S Dollar gained momentum over the last two months and lost steam to the end of July as the market digests the mixed messages from the FED, which might move into an extended rate cut cycle.

The Dollar Index (DXY) is currently finding some technical resistance at the 97.70 level as the price action is exhibiting a possible throwback to the H&S neckline.

DXY Curncy GT247 Bloomberg

Source - Bloomberg

South Africa - The Rand (ZAR)

Not to be forgotten, South Africa has strong economic ties with China which has seen the Rand (ZAR) lose ground against the Dollar (USD) recently as the trade disputes intensified over the last two weeks. There is a strong correlation between the USDZAR and USDCNH currency pairs.

We might see the USDZAR currency pair move lower once again toe the R14.77/USD in the short term as the RSI reaches overbought levels. The longer picture does not look good fundamentally for SA Inc. and move beyond R15.00/USD is more likely.

USDZAR Curncy GT247 Bloomberg-1

Source - Bloomberg

United Kingdom (Brexit)

The Brexit backstop debate is heating up once again with the latest from the new Prime ministers camp #BOJO stating "The prime minister wants to meet E.U. leaders and negotiate a new deal - one that abolishes the anti-democratic backstop. This amidst the European Union saying that a no-deal Brexit appeared to be the U.K. government's "central scenario" - Daily Telegraph and the Guardian.

The British Pound has been in free fall and has managed to find its feet as international pressures mount from a possible "No-Deal" Brexit.

The GBPUSD currency pair has found some support at the 1.2077 Level as oversold conditions are reached on the Relative Strength Index (RSI). Not to forget that a weaker U.S. Dollar (USD) has also contributed to the resent curb in losses for the Pound (GBP).

GBPUSD Curncy GT247 Bloomberg

Source - Bloomberg


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