The market is all but set, that we will see an interest rate cut of 25 basis points later today. The CME Group's FED Watch Tool (below) has confirmed a 78.1% probability. This rate cut will see the Federal Funds Target Rate at 200-225 basis points as the FED enters its easing cycle. The latest U.S Gross Domestic Product (GDP) data, which was better than expected, has put into question whether the FED would enter a long easing cycle.
Take note: that volatility is expected on the U.S Indices and all major markets over this week, especially today with the FOMC interest rate decision.
The Dollar has gained ground over the last week, reaching highs last seen two months ago from the better than expected U.S GDP data. With the FED set to lower interest rates for the first time in over a decade, we might see the greenback lose some momentum.
The 98.24 price level has acted as major resistance over the last couple of months, and with the rate cut on the cards, we might expect the Dollar to retreat from these levels once more. The 97.70 will be watched as the next support level and target level.
The South African government's decision to bail out Eskom once again has seen the Rand (ZAR) weaken significantly. The Rating agencies have also now entered the ring yet again showing their discomfort with the decision to bail out the failing power utility.
We might see some strength return to the Rand (ZAR) with the U.S FED easing interest rates which might see the Dollar (USD) weaken. This would be short-lived for the South African Rand as the debt to GDP in our local economy is on the increase and waning in negatively on future growth prospects.
The Rand (ZAR) has been consolidating above the R13.83/USD support level but has come under pressure over the last couple of trading days due to the Eskom bailout announcement.
The USDZAR currency pair might move lower from R14.19/USD (current level) back to the R13.83/USD technical support in the short term. If the South African fundamentals continue to breakdown, then we might expect the currency pair to gain momentum to the R14.67/USD.
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