The USDZAR currency pair embarked on the new week with a sense of calm after a four-day dip, signalling a potential shift in its fortunes. The subdued risk appetite has propelled the US Dollar’s steady climb, driven by heightened tensions in the Middle East, prompting a flight to safety.
This week, all eyes are on the Federal Reserve, waiting to see if it aligns with the recent decision of the South African Reserve Bank (SARB) to maintain unchanged rates. The SARB’s choice was influenced by the absence of a robust trend indicating slowing inflation, deterring any discussions about potential rate cuts.
While a dovish stance from the Federal Reserve could exert additional pressure on the currency pair, the strength of the South African rand faces constraints due to persistent domestic challenges. Ongoing issues like load shedding and disruptions in ports and rail networks have cast a shadow on economic growth.
Technical
On the 4H chart, a falling wedge pattern has emerged. Volumes have declined, suggesting that the bearish momentum may be fading, an optimistic indicator for those looking for a bullish break from the wedge. However, the 100-SMA (orange line) is resisting a sustainable upside move at 18.8290 and could prove problematic for the buyers as we advance.
If the price can clear this resistance, the breakout could be initiated. The 25-SMA (green line) presents the next hurdle, while resistance is established at 18.9196. The retracement could look for sellers at this level, but an additional move higher could push the pair above the 50-SMA (blue line) toward 18.9952.
On the other hand, failure to clear the 100-SMA could see the pair retesting the Fibonacci midpoint at 18.7359 from the peak of the prior uptrend. If this support fails, the pair could fall back within the downtrend toward 18.6639 and 18.6229, the 61.8% Fibonacci golden ratio. A psychological demand zone near 18.5980 could prove challenging for the bears to break down, offering neckline support to the pair if the falling wedge breakout fails to play out.
Summary
The USDZAR currency pair remained subdued on Monday as the US dollar continued to benefit from its safe-haven appeal. However, the Federal Reserve’s interest rate decision could hold the key to the next directional move in the pair’s trajectory, with resistance at 18.8290 a critical one to watch.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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