Euro’s Looming Golden Cross Maps Course for Rand to Record Low

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Bearish Signals for Rand

Rand's Moving Averages to Euro

If the history of a key technical indicator is any guide, South Africa’s rand is poised to tumble to a record versus the euro in coming months.

The euro-rand’s 100-day moving average, used by some technical analysts to predict price movements, is on the verge of rising above its 200-day average, a so-called golden cross that signals a bullish trend for the single European currency. The last time it happened, in September 2012, the rand embarked on a 32 percent retreat to an all-time low of 15.5017 per euro in January 2014, fueling inflation.

“The 100-day and 200-day moving averages have been very reliable,” Ray Brand, a technical analyst at Johannesburg-based ETM Analytics, said by phone on Aug. 14. “We’re going to have a golden cross pretty shortly.”

The rand’s weakness underscores the challenges President Jacob Zuma’s administration faces in reigniting investment and growth in the $366 billion economy, which is grappling power shortages, rising joblessness and falling global commodity prices that threaten to hurt export earnings from resources, such as coal and iron ore.

The rand weakened 5 percent versus the euro this quarter, the most among 16 major currencies tracked by Bloomberg after Brazil’s real and South Korea’s won. The currency of Africa’s most industrialized economy and world’s largest platinum producer, dropped 0.3 percent to 14.2819 per euro by 7:23 p.m. in Johannesburg, the lowest on a closing basis since Aug. 13.

“Using Elliot Wave projection we can target 15.50” per euro during October, Brand said, referring to a theory created in the 1930s by Ralph Nelson Elliott, an American accountant and author, which seeks to predict moves in markets by dividing past trends into five sections.

The currency has weakened 5.6 percent against the dollar this quarter, falling to a 13-1/2 year low of 12.9231 on Monday. That’s beyond the 12.75 per dollar average predicted for the currency by the end of the third quarter in a survey of analysts by Bloomberg.

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