President Cyril Ramaphosa’s address does not inspire confidence for the ZAR

on the 9th of February, President Ramaphosa, despite heavy opposition from the EFF( the opposition party) that tried to disrupt the speech during Parliament, addressed the country in his speech in Congress. The speech addressed a number of issues, however, it left an uneasy taste in the mouth concerning the new direction that he would be leading Eskom through the use of a new minister. During the speech, the USDZAR jumped up to the 17:80 resistance which signals poor faith in the Presidents plan. What can we expect going forward with the USDZAR, and how can we take advantage as forex traders？

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What is the main issue causing the President trouble

Over the last few months the issue of load shedding has grown to unprecedented levels as South African citizens have gone through longer and longer periods of vacant electricity. This has been due to the failures of Eskom management as the governing board of Eskom directors has seen multiple resignations and rampant corruption which has run the company down. The issue is that Eskom is tied to the economic success of the county as the debt that Eskom accumulates is automatically the governments debt and failure to supply power means there are several electricity dependent businesses that are not running which in turn slows down economic activity.

The President for the past few years has promised time and time again that the issue with Eskom will be solved and load shedding would stop yet the opposite has been the case. In his speech he declared the country is a state of emergency concerning the issue and is now preparing contingencies in the form of a new energy minister who would overlook the Eskom issue.

This move by the president does not inspire confidence as the country has seen these tactics before which yielded very little results. In the last state of emergency that was declared during the COVID-19 crisis, there was rampant corruption and stealing of government funds that one cannot be sure if the Eskom issue will be handled without corruption or misuse of funds. Before the speech the USDZAR was trading at 17,60, but after we jumped right to the 17,80, which signals weak faith in the proposed solutions.

What can we traders expect

The 17,80 resistance has been strong in the past but at this point with the looming threat of economic collapse due to worsening Eskom conditions we can expect to see that resistance being broken. Let us prepare for a weakening ZAR as despite whatever strategy or resources are thrown to the issue, recovering lost power stations and resuming normal energy production will take a while.