Rand Breach Points to Losses, JPMorgan Says: Technical Analysis

The rand may weaken to an almost four-year low versus the U.S. dollar as the South African currency breaches so-called resistance levels, according to JPMorgan Chase & Co., citing technical trading patterns.

“The next big target is around 9.20, 50 percent retracement from the 2008 high,” Niall O’Connor, a technical analyst at JP Morgan Securities, wrote in an e-mail. “The rand can maintain the underperformance bias, so upside risks for dollar/rand look to be intact.”

The rand last touched 9.20 per dollar on April 15, 2009. The South African currency fell today to as low as 9.044, the least since April 22, 2009.

The rand weakened beyond 9 per dollar for the first time in nine weeks as accelerating inflation added to concern about slowing growth amid labor protests and civil unrest in Africa’s biggest economy.

Consumer inflation jumped to a seven-month high in December, reducing the central bank’s room to stimulate the economy. Protests by township residents opposed to a government plan to redraw municipal boundaries in Sasolburg left two people dead yesterday, police spokesman Motantsi Makhele said. The riot comes a week after Anglo American Plc’s platinum unit announced plans to fire workers amid labor unrest in the mining and agricultural industries. Africa’s biggest economy has an unemployment rate of 25.5 percent.

“The rally in dollar/rand has extended into the critical 9.00 medium term range highs,” O’Connor wrote in a note to clients. “An eventual bullish breakout is expected.”

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a bond, commodity, currency or index. Resistance is an area on a price graph where technical analysts anticipate sell orders to be clustered.

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