Feb 27 08:53 GMT


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The Rand and Stock Markets Print E-mail
Daily Forex Fundamentals | Written by | Jun 04 13 14:26 GMT

The Rand and Stock Markets

The South African rand has been one of the biggest losers in recent weeks, in the past month it is down nearly 8% and since the start of the year the rand is down 13%.

A few fundamental factors are weighing on the ZAR:

  • Growth fears in South Africa
  • A rapidly rising budget deficit
  • Another flare up in social unrest in the mining region
  • A general dislike for carry currencies like the rand, the AUD, etc.

The last point is of particular concern - the market is ditching risky EM and carry currencies in favour of safe havens like the yen and the CHF. After falling for most of this year, JPYZAR is up more than 10% in the last 2 weeks.

It is not only the yen that has an inverse relationship with the rand, stocks seem to as well.

At the same time as pressure on ZAR has grown, stock markets have come off their highs. We believe there is a link between rising volatility in emerging market FX and the performance of the stock market. The chart below shows 3-month volatility for USDZAR (as measured by the option market) and the Vix volatility index, which measures volatility in the S&P 500. As you can see, volatility in USDZAR has surged and this has coincided with a rise in the Vix. When the Vix spikes stocks tend to sell off, and vice versa.

Source: and Bloomberg

Takeaway: emerging markets are a good reflection of fears that are starting to grip the market. Thus, it is worth watching USDZAR if you trade stocks, since in recent weeks stocks and USDZAR have tended to peak around the same time.

Short term market idea: USDZAR has fallen back from highs above 10.00 in the last two trading sessions; this could help stocks to stage a short term recovery.

Key levels to watch in S&P 500:

  • Resistance: 1,645, 1,655, and then 1,675.
  • Support: 1,635 - daily pivot, then 1,615,


About the Author

DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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