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Investing.com -- On Wednesday, Bank of America (BofA) told its clients that it closed its short position on the USD/ZAR currency pair at a level of 17.9, having initially opened the trade at 18.34. The decision was influenced by technical and fundamental factors that suggest a potential increase in the value of the USD/ZAR pair.
BofA pointed to the Relative Strength Index (RSI), a technical analysis indicator, which implies that the USD/ZAR might experience an upward movement from its current levels. Additionally, BofA noted that positive fiscal news has already been factored into the price, increasing the likelihood of a negative surprise going forward.
Despite the closure of the short position, BofA maintains a fundamentally bullish stance on the South African rand. The bank’s optimism is rooted in the rand’s undervaluation according to the Behavioral Equilibrium Exchange Rate (BEER) model. This model assesses the fair value of a currency based on economic fundamentals.
Furthermore, BofA’s positive outlook on emerging market (EM) foreign exchange (FX) also supports their favorable view of the rand. The bank’s analysis suggests that the South African currency could benefit from broader trends in the EM FX sector.
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