The USDZAR currency pair has recently sparked significant attention in financial markets. Last week witnessed a notable downturn in the pair, with a staggering 1.57% decline. This marks the second consecutive week in which the South African Rand has shown resilience, strengthening against the Greenback.
Behind this shift lies an interplay of economic forces. The Rand was boosted by upbeat domestic data, including growth in manufacturing activity, a healthy budget balance and growth in money supply, revealing a robust economy. Furthermore, the latest US Nonfarm Payrolls (NFP) data for April, revealing growth below expectations, ignited speculation of potential interest rate cuts by the Federal Reserve, weakening the Greenback.
With the NFP figure nearly halving compared to the previous month, it indicated a moderation in the labour market. This moderation could potentially dampen inflationary pressures, a critical consideration for central bank policies. With the USDZAR taking an unexpected turn, one question lingers: will the Rand continue its upward trajectory, or is this just a temporary blip in the US Dollar?
Technical
The USDZAR pair has been trading within a pronounced downtrend, reflecting ongoing selling pressures in the market. Currently positioned below its 100-day moving average, the pair has encountered three consecutive days of losses, indicating persistent bearish sentiment among traders.
Technical analysis reveals a descending channel pattern, reinforcing the downward trajectory, with a notable resistance level forming at 18.69731, aligning with the upper boundary of the channel. From this resistance level, selling pressures intensified, driving the pair lower. However, support emerged at 18.39277, coinciding with oversold conditions as per the Relative Strength Index (RSI). A subsequent rebound ensued, with the pair retracing towards the 50% Fibonacci Retracement level.
The price behaviour at this level becomes crucial, as a sustained resistance could lead to a retest of the 18.39277 support, fuelled by renewed selling pressures. Conversely, a breakout above the 50% level may pave the way for further upside potential, with the 61.80% Golden Ratio serving as a key point of interest for traders eyeing bullish opportunities.
Summary
The USDZAR’s recent downtrend suggests persistent selling pressure, with key technical levels indicating potential support and resistance. Amidst economic factors favouring the Rand’s strength, including upbeat domestic data and speculation of US interest rate cuts, traders will monitor if the Rand’s upward momentum will endure or face a reversal.
Sources: CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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