The USDZAR currency pair is currently in focus as it charts a trajectory for a second consecutive week of upward momentum. This week, it has seen a modest rise of 36 basis points, showcasing a nuanced market landscape.
Despite robust domestic economic indicators in South Africa, particularly a notable surge in Foreign Exchange Reserves by nearly $1 billion in December, exceeding expectations by half a billion, the South African Rand grapples with establishing a solid footing against the US Dollar. The recent uptick in the Manufacturing PMI to 50.9, signalling expansion in the manufacturing sector in December, underscores this economic strength.
However, the Greenback stands resilient, buoyed by a tempered anticipation of potential rate cuts by the Federal Reserve, bolstering expectations of higher yields in the medium term. As market attention shifts to the eagerly awaited US inflation data due Thursday, the landscape is poised for potential shifts, as this crucial information could profoundly influence sentiments and shape the monetary policy outlook.
Technical
The recent movement in the USDZAR currency pair depicted a compelling downtrend, validated by breaching the ascending channel and the 100-day moving average to the downside.
Amidst this descent, pivotal levels emerged, showcasing the market’s dynamics. At 19.13438, a notable resistance surfaced within the ascending channel, while the resilient support at 18.10879, stemming from November’s base, demonstrated strength during a retest, notably coinciding with oversold RSI conditions.
Following a rebound from the support level, the pair hovers around the 61.80% Fibonacci Retracement Golden Ratio level, navigating diminishing trading volumes. A breakthrough above this Golden Ratio level with robust trading volumes might signal sustained market interest in the upward trajectory, potentially eyeing the 19.13438 resistance level. Conversely, the Golden Ratio could reinforce a reversal, possibly signalling a continuation of the downtrend if downside pressures prevail. This scenario might redirect focus towards the 18.10879 support level.
Summary
The USDZAR currency pair remains poised for potential continued gains, supported by a modest weekly gain. Technical analysis showcases pivotal levels; a breakthrough above the Golden Ratio may hint at further upside, while sustained resistance could prolong the downtrend, influencing market sentiment and potential future movements.
Sources: South African Reserve Bank, Bureau for Economic Research (BER), Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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