Rand turns bearish as it bounces off support

Since hitting a high of 11.38 to the dollar at the end of January, the rand enjoyed a full three 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). Confused with what ‘support’ and ‘resistance’ means? Simply, it is like the f loor (which supports you and stops you falling through) and the ceiling (which you will hit your head against if you try to jump too high) of the market at any time. The market is like a block of f lats, with the ceiling of one level being the f loor of the next, so if you move up a level (break through the ceiling), this now becomes your f loor – and you have a new ceiling. As can be seen, there is a convergence of three levels of support at the point that the market reversed strongly: º If we extend a line joining the highs of 2001 and 2008, this would give us a line that is resistance to the market until it is broken above, and it is now a strong support level. º 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. º We also have a Fibonacci support level at 10.25, being 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? But the question is – where to now? The big level to watch is around 11.0000 which could prove pivotal to the months ahead. www.ForexForecasts. co.za/go/ZAROutlook CAPTION James Paynter is the head market analyst at Dynamic Outcomes