Pound to Rise as Brexit Fears Fade

Pound to Rise as Brexit Fears Fade
June 29, 2016

There is no denial that the outcome of Brexit will have an influence on the economy of the UK for years to come. However, the speculators gave no consideration to the economic strength of the UK while hitting the Pound in favor of the currencies of struggling economies. The GBPZAR (Pound-Rand) is one such currency pair which declined about 15% in a matter of one month. Purely aided by the nervousness of investors, the GBPZAR pair almost had a free fall from a high of 23.2136 to a low of 20.0194. However, a look at the situation in both countries indicates that it will not be long for the Pound to strengthen against the Rand.

The actual impact of the Brexit on the economy of the UK as well as the Euro zone is hard to predict at this point in time. Most analysts believe that until Prime Minister David Cameron hands over the baton of power to his successor in October, things will hardly move forward in the UK. This means trade and general activities between the UK and the Euro zone will continue as usual. Ultimately, such a scenario would trigger a short-term relief rally in the Pound based currency pairs. Short-covering in the currency markets will also lead to a rise in the exchange rate of the Pound.

On the other hand, South Africa is currently going through a lean period, both politically and economically. The country is due to face local elections on August 3rd. Investors are concerned that the sprouting protests may turn into a full-fledged electoral violence.

The rout in the commodity prices has taken a toll on the economy. The ongoing drought has further increased the farmers’ distress. The economy shrank 1.2%, compared to the previous quarter. On a y-o-y basis, the economy reported a negative growth of 0.2%. Recently, South Africa’s finance minister Pravin Gordhan trimmed the forecast of economic growth to 0.9%, from the prior estimate of 1.7%. The IMF (International Monetary Fund) anticipates a growth of only 0.6% in 2016. The unemployment rate of 26.7% is also the highest since 2008. Thus, fundamentals favor the Pound to strengthen against the Rand.

Technically, the GBPZAR has formed a bullish Gartley harmonic pattern. Thus, technically, a long position is the best choice for a Forex trader. A stop loss order can be placed below 20, while the order to book profit can be placed at 21.10.

GBPZAR - Technical Analysis - 29th June 2016

A binary trader can purchase a one touch call option to benefit from the probable uptrend in the GBPZAR pair. A strike price of 21 is almost certain to achieve as long as the one touch put option contract remains valid for at least one month.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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