The USDZAR currency pair has demonstrated resilience, marking a 4% gain year-to-date, building upon its positive momentum from the previous year.
This surge is largely attributed to the buoyancy of the Greenback, driven by robust economic indicators and tempered expectations for interest rate cuts. Notably, the recent revelation of Nonfarm Payrolls, surpassing expectations with a staggering rise to 353,000, almost double the anticipated figure, bolstered the trajectory of the U.S. dollar.
Initially, market sentiment leaned towards a potential rate cut as early as March. However, the unforeseen strength in the labour market, a key determinant of inflation, has significantly quelled such expectations. Traders are now reevaluating their projections, with a mere 52.2% probability of a cut anticipated in the May meeting, as indicated by the CME FedWatch Tool. As this week unfolds, all eyes are set on pivotal U.S. economic data releases, notably the Consumer Price Index (CPI), retail sales data, and the Producer Price Index (PPI), promising further insight into the direction of the USDZAR pair.
Technical
The USDZAR closed the previous week on a positive note, marking back-to-back weeks of gains. This upward trend was sparked by the pair’s breakout above a descending channel pattern and its crossover above the 100-day moving average, signalling bullish market sentiment.
The rally initiated from the 18.55159 level, driven by oversold RSI conditions that prompted a surge in buying activity. The breakout from the descending channel, accompanied by robust upside volumes, confirmed the shift in sentiment towards the upside.
Although resistance at the 19.08706 level has yet to be retested amidst the ongoing rally, overbought RSI conditions persisted just below this level, indicating a potential barrier for further upside movement. Should bearish traders enter the market in numbers, a sustained reversal could be on the horizon, potentially targeting the 100-day moving average as a support level. Conversely, if bullish sentiment prevails, a retest of the 19.08706 level remains plausible.
Summary
The USDZAR’s 4% year-to-date gain reflects the Greenback’s resilience and robust U.S. economic data. While technical analysis suggests bullish momentum, retesting resistance at 19.08706 remains pivotal. Traders will likely monitor U.S. economic releases for further insight, navigating potential shifts in market sentiment and key technical levels.
Sources: CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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