The Pound-to-South-African-Rand rate fell for the third consecutive session at the start of the new week after following reports alleging that officials are sacrificing much needed detail in order to get a quick fix in the Brexit negotiations, but the bigger picture supports a bullish outlook for GBP/ZAR.
The Rand enjoyed a brief recovery Monday due to a dissipation of concerns about the emerging market (EM) outlook but the Pound-to-Rand rate remains in a strong medium-term uptrend.
The RSI momentum indicator is exiting the overbought zone, which is a bearish sign. We won’t know until the end of the day, however, whether it will achieve a close below the overbought threshold, which would be a bearish sell signal for the pair. The RSI alone, however, is not enough to suggest a reversal as the dominant uptrend is strong.
We think the weakness over the last few days is only temporary, and the pair will probably just move sideways for a while before resuming its uptrend.
One possible scenario is that the pair could consolidate between the 19,53 August highs and the 20,13 September highs, before eventually breaking higher and reaching a target of 20,50. Such a move would be confirmed by a break above the 20,15 level, near the previous week’s highs.