GBPZAR: pound to rand rate targets 25.78 as UK retail sales flop

The pound to rand (GBPZAR) pair is inching nearer to its 2016-high of 25.78 following the disappointing retail sales data from the UK and South African reopening.

South Africa reopening

The South African government has announced tentative steps to reopen its economy following the four-week lockdown. The steps were reported by Cyril Ramaphosa in a televised speech yesterday.

In the speech, he said that limited activity would resume in the country starting from next Friday. He said that the gradual reopening was recommended to him by health experts, who warned him that an abrupt opening up would lead to more cases.

The statement by the president came two days after the government unveiled a multibillion-dollar stimulus package. The funds will go to help companies recover from the virus. Some of it will also be sent to about eight million vulnerable South Africans.

Also, it came on the same day that De Beers warned that it will produce fewer diamonds in the country because of low demand in the United States.

UK retail sales disappoint

The GBPZAR pair also rose slightly after the weak retail sales from the UK. Data from the ONS showed that the retail sales declined by 5.1% on a month-over-month basis. This was the worst decline in sales on record. It was also below the expected decline of 4.0%. The sales dropped by 5.8% from a year before. Meanwhile, the core retail sales dropped by a MoM rate of 3.7% compared to the expected 3.5%.

According to the ONS, the weak retail sales were mostly due to a drop in clothing and accessories industries. Obviously, as the lockdown neared, most people were not focused on clothing. This decline was offset by an increase in food and home products. The ONS also reported that online sales by a record 26% in the quarter.

These numbers came a day after we received disturbing manufacturing and services PMI data from Markit and CIPS. They also show that the UK economy could face a deeper recession than earlier expected.

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Pound to rand technical outlook

On the weekly chart, the GBPZAR appears to be in a strong uptrend that started on December 30, when it was trading at 18.2440. The rally has accelerated in recent days, which has seen it move above the 50% and 61.8% Fibonacci retracement levels. At the present price, the pair has found a strong resistance at the 78.6% retracement. Meanwhile, the pair remains above the 50-period and 100-day moving average.

I expect the upward trend will continue if the pair sustains levels above the 78.6% retracement at 23.5530 as bulls eye the January 26 high of 25.7873. This is about 10% from the current price of 23.4200.

On the flipside, it is possible that bears will start coming in now that the pair is in its final major Fibonacci resistance. If bears prevail, the pair could retest the 61.8% retracement at 21.7833.

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