The pound to rand pair (GBPZAR) pair was little changed for the third straight day as bears started to take profit. The pair is trading at the important resistance level of 21.500, which is the lowest it has been since March 26.
The pound to rand pair is pausing as investors start to question the decision by South Africa to reopen its economy. Today, the government said that it will allow religious gatherings of up to 50 people.
There are two risks for South Africa’s reopening. First, the number of new infections is still rising. Yesterday, the country reported 650 infections after reporting 1,032 a day before. These numbers are still elevated compared to other countries like New Zealand and Australia that have reopened.
Second, unlike countries like South Korea and China, South Africa has not conducted mass testing. That means that by reopening, the country will be risking more local transmissions.
The mining sector is particularly risky. According to Bloomberg, while full-scale mining will resume in June, mining companies will find it difficult to mine. For example, it will take between four to five hours to screen the tens of thousands of workers.
The GBPZAR pair is also reacting to positive retail sales data from the UK. According to Nielsen, more than 7.9 million Britons shopped online between April and May. These people bought goods worth more than $1.5 billion, a record. That was a 135 increase from the previous month.
The British pound will soon be on edge as the next round of Brexit talks start. These will be the final round until June 30, when the UK is facing the deadline to request for extension.
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The GBPZAR pair is trading at 21.4790, which is slightly below the 38.2% Fibonacci retracement level and slightly above the 100-day EMA. The pair also appears to be forming a small bearish pennant pattern. Therefore, I expect the trend to remain bearish as bears attempt to test the 50% retracement at about 21.000.
On the flip side, a move above 22.3957 will invalidate this trend. This price is slightly above the 50-day EMA and is along the 23.6% Fibonacci retracement level.