Over the course of this year, the Rand has faced a formidable adversary in the form of the U.S. Dollar as the USDZAR currency pair closes in on its third consecutive week of gains. This week, a notable surge of 2.25% positions it for its best week in the new year, propelled by the Dollar’s unyielding strength.
Recalibrating their expectations, traders have scaled back bets on imminent rate cuts to 60%, a significant retreat from the near 80% figure at the week’s commencement, according to the CME FedWatch Tool.
This shift is attributed to a modest uptick in U.S. inflation and Federal Reserve officials advocating an unrushed approach to policy changes until inflation confidently aligns with the 2% target. Concurrently, heightened Middle East tensions amplify concerns of supply chain disruptions, prompting investors to seek refuge in the safe-haven Dollar, now soaring at a one-month high.
Technical
The USDZAR currency pair has undergone a noteworthy transformation this year, as a decisive shift above the 100-day moving average marked a departure from the preceding downtrend.
The downtrend originated from the 19.13438 level, a robust resistance point within an ascending channel. However, the pair encountered a formidable support level at 18.10879, hailing from November’s foundation. This level exhibited resilience during a retest, aligning intriguingly with oversold RSI conditions.
The subsequent rebound propelled the pair past the 61.80% Fibonacci Retracement Golden Ratio, backed by robust upside volumes. With the 19.13438 resistance level now looming tantalizingly close, it emerges as a potential short-term focal point amid sustained upside momentum. Nevertheless, caution beckons, as overbought RSI conditions signal a possible reversal at the resistance level. In the event of a downturn, attention might pivot to the Golden Ratio, presenting itself as a discernible marker for potential downside movements.
Summary
The South African Rand succumbed to the U.S. Dollar’s dominance, with the USDZAR currency pair poised for its best week this year, escalating by 2.25%. Traders recalibrated expectations amid reduced bets on rate cuts, dropping from nearly 80% to 60%, influenced by U.S. inflation dynamics and Fed speeches. Technically, the pair faces a pivotal juncture near the 19.13438 resistance, with overbought RSI signalling a potential reversal.
Sources: CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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