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Why Eskom’s big bail out could help the South African rand
Going back to Eskom’s Rescue-plan bill.
The bill stated that the money must be allocated to Eskom to “assist with its financial obligations”.
The money will come from government’s National Revenue Fund, where they will allocate R26 billion for the 2019/20 financial year and R33 billion for 2020/21.
And for security and anti-corruption measures, the bill will be paid under strict conditions, in order to promote transparency and efficiency with the management of the amount that the Minister of Finance may set before any amount is transferred.
Eskom’s Rescue Plan was the boost the rand needed
On Thursday we saw the South African rand rise over 1%, to under R13.90. Not only are consumers loving the strengthening rand as their money is worth more to the US dollar but also the rand bull traders (buyers) are taking it in their stride.
In fact, this rand strength has coincided with Eskom announcing a rescue plan for the utility state-owned company. And guess what? The charts agree there is still massive upside to come for the rand in the next few months.
Why rand is set to strengthen to R13.00
There are two technical chart analyses, I’ll reveal in this article which confirm the strong downside to come for the US dollar against the rand (USD/ZAR).
Rand analysis #1: Broken uptrend
First, we can see on the daily chart of the USD/ZAR, it has been rallying on a strong uptrend (black line) since 22 January 2018.
And now for the first time, the USD/ZAR has broken below the uptrend (red circle) which is causing a market sell-off.
With the sellers dominating the market, it has created momentum for further downside for the USD/ZAR.
The first target we can expect the USD/ZAR to hit is at the next floor level (green line) at R13.00. This will be a 4% rally for the rand, which we can take advantage of as traders.
Rand analysis #2: Mountain-Hill pattern
September 2018, the rand has been coming down in what I call a ‘Mountain-Hill’ pattern.
A Mountain-Hill is a pattern with two consecutive curves with the left curve being higher (Mountain) than the second curve (Hill).
To illustrate this, you can see that on 4 September the rand reached a high of R15.60 forming a Mountain (1st Blue curve). And in June 2019, the rand only touched a high of R14.87 forming a Hill (2nd Blue curve).
This formation tells us there is more supply (selling) for the US dollar against the rand than there is demand. This supply will lead to further selling which will continue to bring down the price of the USD/ZAR.
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So how can we profit from the strengthening rand
It’s been a while since we’ve actually seen strength with the rand, and so with the rising price we can expect a number of sectors to rally which we can buy and profit.
I’m talking about shares that fall into the banking, insurance and retailer sectors.
Exciting times lie ahead for traders
“Wisdom yields Wealth”
Analyst, Red Hot Storm Trader