As Wednesday unfolds, the USDZAR currency pair takes a decisive lead, propelled by the latest revelations in inflation data from both the US and South Africa. In the United States, year-over-year inflation experienced a slight dip from 3.2% to 3.1%, aligning seamlessly with market expectations, while core inflation held its ground at a steadfast 4%. Meanwhile, in South Africa, the annual inflation figure leaned towards the softer side, slowing more than anticipated from 5.9% to 5.5%, diverging from the consensus of 5.6%. Core inflation in South Africa stood at 4.5%, surpassing the market’s forecast of 4.4%. However, on a monthly basis, the inflation print revealed a notable contraction at -0.1%, a stark deviation from the previous 0.9%, and falling below the anticipated 0.1%, prompting a retreat in the South African rand.
As we press forward, all eyes are on the Federal Reserve’s final interest rate decision this Wednesday, a pivotal moment in determining whether the market accurately predicted the timeline for rate cuts in 2024, particularly in the aftermath of last week’s robust jobs report. The stage is set for a compelling unfolding of events in the currency market.
Technical
On the 4H chart, an ascending channel is in play, with the currency pair recently pushing above the 25-SMA (green line) as the bulls took charge. Support at 19.0217 underpins the currency pair’s momentum as we head into a potentially volatile session.
The first potential resistance to the currency pair’s current uptrend is at 19.1384. This resistance converges with the dynamic resistance of the channel and could prove challenging to break through, opening the potential for a pullback. However, should the pair move higher, it could trigger a steeper uptrend toward 19.1781 and 19.2178.
Conversely, a pullback from 19.1384 could see support at 19.0217 undergoing a retest. Should it fail, the pullback could be sustained toward 18.9485, a support level backed by the 25-SMA. Therefore, a leg below this support could signal a shift in the market’s short-term sentiment, making lower support at 18.8868 a likely destination at the 50-SMA.
Summary
The USDZAR currency pair is firmly on the front foot in the Wednesday session ahead of the Federal Reserve’s interest rate decision. As we advance, resistance at 19.1384 could be pivotal in determining whether the current uptrend will be sustained or a pullback is on the cards toward 19.0217.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
