The USDZAR currency pair has recently drawn significant attention as the South African Rand strengthened against the U.S. Dollar.
Over the past three weeks, the USDZAR pair has weakened, and it appears set for a fourth consecutive week in negative territory, shedding 1.28% so far this week. This trend underscores the Rand’s robust performance despite weak domestic data, including declining mining and gold production reported by Statistics South Africa.
The U.S. Dollar has been under pressure following a slight decline in the inflation rate for April, which came in at 3.4%, a ten basis point drop from the previous month. Additionally, the year-over-year core inflation rate grew at its slowest pace since April 2021, signalling progress in the Federal Reserve’s restrictive monetary policy aimed at curbing inflation. As a result, markets have priced in a higher probability of a rate cut in the U.S. this year, further weighing on the Greenback and boosting the Rand.
Technical
The USDZAR currency pair is trading in a clear downtrend. It is currently positioned below its 100-day moving average, signalling sustained bearish momentum. The descending channel pattern further validates this downward trajectory.
Following a brief upturn, the pair encountered resistance at the 18.47766 level, and selling pressures resumed, driving it towards the lower boundary of the descending channel. A short-term rebound played out as the pair found strength around the 18.15210 level, driven by oversold conditions in the Relative Strength Index (RSI). If this upside momentum continues, the 18.47766 resistance level could attract traders hopeful about the U.S. Dollar’s recovery prospects.
Conversely, should downside pressures prevail, the USDZAR might retest the 18.15210 support level. A break below this level could pave the way for a five-month low, reflecting continued bearish sentiment in the market.
Summary
The USDZAR’s downtrend is confirmed by its position below the 100-day moving average and a descending channel pattern. Key levels to watch are the 18.47766 resistance and 18.15210 support. Breaking below 18.15210 could signal further declines, highlighting persistent bearish sentiment amidst economic pressures.
Sources: U.S. Bureau of Labor Statistics, Statistics South Africa, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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