The USDZAR currency pair has embarked on an upward trajectory since November 15, primarily propelled by a faltering Greenback grappling with shifting market sentiments. This surge reflects broader favouritism toward risk assets, encouraged by a softening U.S. economic landscape. The diminishing inflation and a sluggish labour market, a pivotal driver of inflation, have fostered market expectations of an imminent conclusion to the era of monetary tightening.
The most recent inflation report witnessed a 10-basis-point drop to 3.1% for November, aligning with the narrative of an approaching end to the tightening cycle. However, South Africa’s third-quarter GDP contracted by 0.7%, signalling economic deceleration and introducing potential hurdles for the South African Rand’s optimism.
The impending interest rate decision by the Federal Reserve carries substantial weight and is poised to shape the perception of the U.S. policy outlook. The intricate interplay between the Greenback and the Rand remains subject to these forthcoming monetary decisions, a pivotal aspect in understanding the trajectory of the USDZAR pair amidst the broader economic dynamics.
Technical
The USDZAR currency pair has demonstrated an uptrend, maintaining a position above the 100-day moving average within an ascending channel pattern. This upward momentum was initiated after finding support at the 18.10879 level, where the Relative Strength Index indicated oversold conditions, sparking a resurgence.
A new support level near the lower boundary of the ascending channel was formed at the 18.72349 level. As the pair climbed higher, it encountered resistance at the 19.13438 level, prompting a temporary downturn. The pair approached the critical 61.80% Fibonacci Retracement Golden Ratio, signifying a crucial point in its trajectory.
Should the ongoing downtrend persist and lead to a substantial breakdown below the Golden Ratio with significant volume, it may signal a surge in downside interest, potentially aiming for the 18.72349 level. Conversely, if this level remains robust as a support zone, it could pave the way for a reversal, bolstering the continuation of the prevailing uptrend. Optimistic traders will likely focus on surpassing the 19.13438 resistance level, potentially triggering further upside momentum if bullish sentiment prevails over bearish pressure.
Summary
The USDZAR currency pair showcases an upward trend amid a faltering U.S. dollar and shifting market sentiments, largely driven by a softer U.S. economic landscape. The recent decline in U.S. inflation aligns with expectations of an end to monetary tightening. Yet, South Africa’s GDP contraction poses challenges to the Rand’s optimism. Technical analysis signals potential reversals and key support levels, while the pair’s movement remains subject to forthcoming monetary policies, shaping its future direction amidst economic shifts.
Sources: U.S. Bureau of Labor Statistics, Reuters, TradingView
Piece Written By Nkosilathi Dube, 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.
