The US Dollar could not strengthen beyond 1.31 against the Euro so now we see evidence that a new wave of weakening in the Dollar is about to start.
We expect the Dollar to weaken more, with a target of 1.42 to the Euro in the next 60 days. If this view does materialise, it will be bullish for shares.
While the Dollar is expected to weaken against the Euro, the Rand on the other hand is trending stronger against the Euro. This implies substantial Rand strength against the Dollar of course.
After breaking out of the canal between line 1 and 2, the minimum target is 8.50 for Euro/Rand. However, a correction to 9.10 over the next few weeks is a strong possibility and is part of a longer term strengthening trend.
As we mentioned in earlier posts, the Rand is targeting 6.50 against the Dollar. This target is almost being realised as the Rand is currently trading stronger than 6.60. It is difficult to put a time-frame to movements but we were not too far out with our target being reached by "late December or early January". We can expect substantial resistance for the Rand at 6.50. That means that the Rand could weaken (temporarily) once it tests 6.50.
While we are not in the business of predicting the future, in order to add value to our clients' accounts, we have to identify the current trend and draw conclusions from that. We are of the view that the Rand may strengthen for years to come and my personal view is that we might even see the Rand at 5.50 to the Dollar before 2012 is out. This implies that South Africa will be a favourite destination for international investors as the currency appreciation alone offers great returns.
