Remgro is trading at the rising support line around 104. This is also a strong Fib level (green line). The oscillators are grouping in the top window, indicating a timing signal for a turning point. Wait for a bullish reversal before buying. A tight stop will be a close below 103 and if support breaks, the target to the downside is 90.
Over the past 3 weeks we have witnessed a significant event on the currencies. We are all aware that currencies are always volatile and that movements are unpredictable most of the time. Sometimes however, we see a movement in price that has more significance than the normal week-to-week or even monthly movements.
Such an event signals the start of a new, longer term trend. The dollar index broke the support line -1-, that began in 2008. As such, it broke out of a 3 year consolidation during which the dollar strengthened and weakened in a triangle formation against a basket of currencies. The recent break of the trend line, signals the start of a new weakening trend for the Dollar.
The graph shows that the index is consolidating below the trend line, and failed to break above what is now resistance at 77.
The longer the index fails to break above 77, the greater the odds of a major weakening in the Dollar. We can expect the Dollar to weaken to 70 on the index which implies a weakening of 9%.
The longer the index fails to break above 77, the greater the odds of a major weakening in the Dollar. We can expect the Dollar to weaken to 70 on the index which implies a weakening of 9%.
That will only be the beginning of a much larger trend for a weakening Dollar as we see signs that there is a possibility for the dollar to weaken by 40% over the next decade.
This scenario will be driven by the yield differential between the basket of currencies. The negative real interest rate scenario in America will be the fundamental driver of this trend. When interest rates in America are below the rate of inflation, it means that money is for free and worth less against currencies with positive real interest rates.
The direction of the share market and commodity market depends on the value of the dollar. Think about the implication for inflation in South Africa and the rest of the world if the reserve currency (USDollar) is devalued by 40%. For starters, it implies that without any demand/supply shocks, the price of wheat, maize, oil etc. will increase by 40% in terms of the Dollar. Let's hope that the strengthening of the Rand will protect us against such a rise in the cost of basic necessities. We have seen the riots all over the world that stemmed from high food prices. High food prices and high unemployment is an explosive mixture in any country. It is the mandate of our Reserve bank to fight inflation. As long as that remains their mandate, the Rand should strengthen. The risk here is that fraud, overspending on social grants, poor service delivery and incompetence in government structures may weigh heavier on the Rand than the pro's of having one of the most competent Reserve banks in the world.
