Having encountered a decline exceeding 3.5% in the previous week, the USDZAR currency pair is poised for a potential recovery in the early sessions of this week. The recent decision by the Federal Reserve to pause its interest rates, coupled with dovish commentary signalling a likelihood of rate cuts in the early months of the upcoming year, triggered a notable downturn in the currency pair. Market sentiments are currently swayed, with a 75% probability, as indicated by the CME FedWatch Tool, that rates will see a reduction by March.
This probability, however, stands on the precipice of transformation as the eagerly anticipated PCE Price Index data is set to be unveiled on Friday. The question lingering in the air is whether the selling pressure on the currency pair will persist in the coming week or if there will be a reversal, allowing the pair to recoup its losses from last week’s selloff.
Technical
On the 4H chart, the currency pair is looking for direction after a sustained breakdown from the ascending channel. Resistance at 18.4572 is trying to keep the bulls at bay, as the crossing of the 25-SMA (green line) below the 50-SMA (blue line) and 100-SMA (orange line) confirms the presence of sellers.
If the resistance at 18.4572 continues to prevent further upside from last week’s bottom, the currency pair could pull back toward support at 18.3587. From there, lower support exists at 18.2466 and 18.1429 if the selling pressure continues into the new week.
However, a sustainable breakout above 18.4572 could see the currency pair test the Fibonacci midpoint at 18.5999, close to the 25-SMA. The 61.8% Fibonacci golden ratio could then come into play at 18.7158 before a psychological resistance could provide a challenge to the continuous upside at 18.7555, where the 50-SMA and the 100-SMA are converging.
Summary
The USDZAR currency pair started the week on an optimistic note, looking to recoup some of its prior week’s losses. As the buyers attempt to sustainably push through the 18.4572 resistance, the market could look toward 18.5999 as a potential level of interest in the upcoming sessions.
Sources: Koyfin, Tradingview, CME Group
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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