Since hitting a high of 11.38 to the Dollar at the end of January, the Rand enjoyed a full 3 months plus of bullish gains.
But just when it seemed this trend was going to continue, we saw a big bounce after it hit a low of 10.27 mid-way through May.
While this caught many by surprise, it shouldn’t have when you see the strong support that converged at these levels, as can be seen in the Chart (an update of the Chart that we published in August 2013).
Click to see full size...[features_box_grey width="80%" + border="3x"] Confused with what ‘support’ and ‘resistance’ means?
Simply put, it is like the floor (which supports you and stops you falling through) and the ceiling (which is resistance if you try and jump too high) of the market at any time.
The market is like a block of flats, with the ceiling (resistance) of one level being the floor (support) of the next, so as you move up a level (break through the ceiling), this now becomes your new floor (support) – and you have a new ceiling (resistance). [/features_box_grey]
As can be seen, there is a convergence of 3 levels of support at the point that the market reversed strongly:
- If we extend a line joining the highs of 2001 and 2008, this gave us a line that was resistance to the market until it was broken above, and it is now a strong support level.
- Since the low in 2011, the Dollar/Rand has risen between two parallel lines (called a channel), and just as the upper channel line proved strong resistance at the end of January 2014, so the lower channel line has proved strong support when tested mid-May.
- We also have a Fibonacci support level at 10.25, being a 23.6% retracement of the move from May 2011 to January 2014.
Given the above, is it surprising the market has bounced strongly off these levels?
Of course, subscribers to our forecast service had forewarning of this anticipated reversal well ahead of time in the medium term forecast update issued on 9 April 2014 (see chart below):
Click to see full size forecast and commentary...As can be seen, we expected the Rand to reverse in the 10.30 to 10.25 area ( with 70% probability) - which is exactly what it did, making a low of 10.2722 on 13 May 2014 before rising strongly over the next few weeks.
But the question is – where to now?
As can be seen from the chart, the centre-line of the channel has proved to be an area of resistance the past 3 years, and we can expect it to be again.
The big level to watch is around 11.0000 which could prove pivotal to the months ahead.
The big level to watch is around 11.0000 which could prove pivotal to the months ahead.
Need more details as to how you can keep up to date with Rand's expected movements over the days, weeks and months ahead? Go here now.
Look forward to your comments and feedback in the area below.
To your success~
James Paynter
3 replies to "Rand Bearish As It Bounces Off Support"
Hi James,
It will be interesting to see whether a down grade by rating agencies is priced in or not and if not, we might see R11 sooner than we think. Keep on doing the good work.
Kindest Regards
Hi James,
It will be interesting to see if it goes back down to 10.52-10.47 and then advances to 11.
Kind regards,
Thomas - we had a slight move down but have since risen to 10.84...the next few days are pivotal.
Kind regards