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Market Analysis

Technical analysis of GBPZAR

August 26, 2019
BY Michael Stark

An ongoing uptrend is evident on the four-hour chart of the pound sterling against South Africa’s rand (GBPZAR). This unique symbol has made strong gains since the end of last month, moving up from a distinctive stochastic crossover. Last Friday’s price around R18.90 was a two-month high. This seems to be the most important area of resistance this week.

Low support comes around the low at the end of July in the area of 17.18. Although a swift movement downward to this zone does not appear to be likely in the next few periods, we should still expect to see a bounce from there if the uptrend retraces.

Technical indicators on GBPZAR H4

Our usual combination of 20 (from Bands), 50, 100 and 200-period simple moving averages yields a fairly strong buy signal. Price is above all of these MAs, and one can observe successive golden crosses in the first week of August. The 50-period SMA has caught up to the the 20 SMA, which might suggest weaker momentum today or even the potential of a larger retracement this week. However, that area of 18.60 is likely to be a zone of support in the near term. Below this, the 100 SMA could be an important support around 18.40.

Bollinger Bands (20, 0, 2) have expanded slightly since the end of last week, which might suggest that volatility will be higher over the next few days. Bands do not give any signal as to saturation at the moment, but the upper deviation is likely to function as an area of resistance. Data from the slow stochastic (15, 5, 5) is more important. The downward crossover slightly inside the overbought zone is a classic signal of retracement, supporting the picture of lower momentum from the 20 and 50 SMAs.

MACD (12, 30, 9) also seems to suggest weaker momentum upward. The histogram has been basically stable in this week’s trading so far, and the signal line seems set to catch up with it. This means that an extension upward within overbought does not appear to be likely.

Price action and Fibonacci

The lack of follow-up on classic patterns since late last week also runs with the apparent decrease in momentum. Friday featured upward three soldiers, although we can observe somewhat elongated tails. Then this week’s opening candle engulfed the previous period despite having quick a long wick. Now the last period has balance between its wick and tail. In general, then, traders should be cautious before buying a breakout based only on price action here.

Fibonacci lines here come from the overall uptrend since the end of July. Perhaps the most important of these is the 23.6% retracement because this occurs in the area of the initial slowdown in momentum last week. None of the other lines appears at present to be any more significant than usual.

Key data points

A number of releases from the UK this week features data on mortgages and loans prominently. More importantly, GfK consumer confidence for August is released on Thursday night at 23.00 GMT. This will probably not alter the technical outlook notably. However, unpredictable politics in both the UK and South Africa plus the G7’s meeting might provide some fundamental direction.

Technical analysis GBPZAR: summary

The overall signal from technical indicators on H4 GBPZAR suggests lower momentum and possibly a more significant retracement from last week’s high. More gains in the immediate future are unfavorable; however, traders must consider this symbol’s very high volatility. Brexit in particular is an important driver of all of the pound’s pairs.

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