Hi there,

This edition provides an in-depth analysis of recent events with profound effects on the worldwide financial landscape. Anticipated data for Friday morning is expected to reinforce the case for forthcoming U.S. interest rate reductions. The rand saw a recovery, mitigating its previous losses, as market participants evaluated statements from Federal Reserve representatives hinting at possible rate adjustments, thereby impacting the strength of the U.S. dollar. Meanwhile, the EUR/USD pair has exhibited steady upward movement, though not exceptionally strong, prompting discussions about its enduring strength.

– Matheus Zani & Daniel Porto

R&D Featured Article

LATAM VC and PE funds Leading the Way in Emerging Market FX Hedging

In the current volatile economic landscape, private market funds in emerging markets, particularly Latin America (LATAM), are navigating challenges tied to currency fluctuations. The uncertainty surrounding the US dollar's safe haven status has led some investors to explore alternative markets, causing a rally in LATAM currencies. Despite this, offshore investors remain cautious about currency volatility's impact on returns, often favoring domestic funds. Matheus Zani, Head of FX Risk Management at Deaglo, emphasizes the need for emerging market managers to deliver competitive returns when translated into global currencies. In response, some LATAM fund managers are turning to hedging strategies, facilitated by reduced hedging costs. This shift is observed in the industry, with fund managers considering hedged share classes to insulate investments from abrupt currency changes and enhance transparency for investors, ultimately providing a competitive advantage in emerging markets.

2. South Africa's Energy Reforms and ZAR rebound

The rand rebounded, reducing its losses from the prior session, as traders assessed remarks from Federal Reserve officials about potential rate cuts, which have put pressure on the U.S. dollar. Additionally, South Africa's improved terms of trade and increasing gold prices have benefited the local currency. Analysts noted that these factors "should bolster the ZAR due to the USD's decline." They also indicated that the rand is currently undervalued and has further potential for appreciation.

In other news, South Africa's energy reforms are anticipated to yield significant results by the latter half of 2024. Until that time, the economy will remain burdened by electricity shortages. Notably, small and medium-sized enterprises, particularly those in the trade, catering, and accommodation industries, as well as the energy-intensive mining and manufacturing sectors, stand to gain the most from these reforms.

Currently, South Africa's available electricity supply has dwindled to just half of its installed capacity of 47 GW, a decline from the two-thirds figure observed in 2019. Sectors such as mining, manufacturing, and trade are most reliant on this installed power capacity.

3. Euro Key Levels

The EUR/USD pair has been showing consistent growth, albeit not robust, raising questions about its resilience. Even after the CCI indicator signaled overbought conditions for the fourth time, a typical correction was absent. Following last week's uptick due to the ECB and Fed meetings, corrections were notably missing. Essentially, the Euro seems to be defying market trends and consistently climbing.

Here are the pivotal support and resistance levels for EUR/USD:

Intraday Support: 1.0893 (21-DMA); Weekly Support: 1.0760 (55-DMA)

Intraday Resistance: 1.1017 (Nov. 29 peak); Weekly Resistance: 1.1065 (Aug. 10 peak)

Charted Territory

What to look out for today

GBP - GDP (Q3)
GBP - Core Retail Sales (Nov)
EUR - Spanish GDP (Q3)
USD - Core PCE Price Index (Nov)
USD - Personal Spending (Nov)
USD - Durable Goods Orders (Nov)

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