DAILY MARKET UPDATE - 08 OCTOBER 2019 | Merchant West


capital markets

Merchant West Capital Markets

USD/ZAR 15.16 | EUR/ZAR 16.6166 | GBP/ZAR 18.6205

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Market Commentary:

With the dollar on the front foot and Turkish Lira under pressure, the USD-ZAR ended the session 0.8% higher in bouncing back up to R15.20. This will be entrenching technical support in the 15.00-15.05 region, while topside resistance levels in the 15.40-15.50 region could be tested in the event of a more meaningful deterioration in sentiment.

For now, however, this move looks more like a knee-jerk reaction. Gold, which traditionally tends to outperform in geopolitically tetchy situations, ended the session lower, trading more in line with the bias in rallying stock markets. Idiosyncratically driven market trading days like Monday, where correlations break down, suggest risk sensitivity is rising. Given the range of high-stake risk events such as Brexit, major policy announcements, and trade negotiations, it could also be that lower market volumes are exacerbating sensitivities.

In terms of major drivers in the session ahead, note that Fed Chairman Powell will be speaking today. He is likely to offer some much-needed clarity on the US rate outlook, and pressures in US money markets, which could in turn drive direction in markets ahead of the FOMC minutes offered later this week. Any signs of hesitation in the expected Fed easing bias priced into OIS futures could continue to support the dollar. Note that China and the US will be re-entering trade talks on Thursday, with signs of progress generally supportive of risk assets. This could overshadow developments between Syria and Turkey, although they still hold the potential to drive market volatility in the event of unexpected consequences.

Risk assets could well experience some volatility through October against the backdrop of Brexit brinkmanship, weak growth data, US-China trade negotiations, and emerging geopolitical uncertainties in Syria. This could turn the screws on the rand at a time when the government’s finances are in dire need of reform. Crucial in this context will be whether global developed market central banks can maintain a sense of calm with policy easing. USD-ZAR is entrenching a 15.00-15.40 trading range against this backdrop, with a consolidative tone likely to remain in place until the market has a line of sight on fiscal reform.

Range for the day: 15.00 - 15.20