The USDZAR currency pair has shown notable volatility recently, captivating investors and traders alike. Over the past few weeks, the South African Rand appreciated against the U.S. Dollar, leading the USDZAR to test a five-month low. However, the tide turned last week as the USDZAR gained 1.44%, ending a four-week losing streak for the Dollar.
This shift was fuelled by robust U.S. economic data, which bolstered the Greenback. The upbeat data increased expectations that the Federal Reserve might postpone interest rate cuts until later this year. As a result, the U.S. Dollar found its footing, reversing the Rand’s prior gains.
Looking ahead, the USDZAR will likely be influenced by key developments in both countries. South Africa faces a pivotal election on May 29, followed by an interest rate decision from the South African Reserve Bank (SARB) the next day. Meanwhile, the U.S. will release the PCE Price Index, the Federal Reserve’s preferred inflation measure. These events are set to shape the USDZAR’s trajectory, making it a focal point for market watchers eager to understand the interplay of economic policies and market dynamics.
Technical
The USDZAR currency pair has shown a marginal uptick at the start of the week, indicating the Greenback’s resilience. Initially, the pair traded in a clear downtrend, positioned below its 100-day moving average and following a descending channel pattern. This downtrend saw the USDZAR reach a five-month low at the 18.02991 level, a critical support level. At this point, oversold conditions in the Relative Strength Index (RSI) suggested a potential rebound, which materialized with significant daily gains last week.
Breaking out of the descending channel and surpassing the 100-day moving average, the USDZAR was supported by robust upside volumes. However, the upward momentum stalled at the 18.50080 level amid overbought RSI conditions, opening the door for some bearish activity. The pair subsequently retraced to the 23.60% Fibonacci Retracement level.
If downside momentum persists, traders might eye the 50% Fibonacci Retracement level as a potential target. Conversely, if the upward momentum regains strength, the USDZAR could retest the 18.50080 resistance level, drawing interest from traders hopeful for a sustained recovery of the U.S. Dollar.
Summary
The USDZAR’s future hinges on key levels and events. With the pair currently near the 23.60% Fibonacci Retracement level, traders are likely to watch for a move toward the 50% level if bearish momentum persists or a retest of 18.50080 if the Dollar strengthens further, driven by economic developments.
Sources: Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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