RAND ANALYSIS

  • DXY tracks historical downtrend over Christmas.
  • South African COVID-19 new cases decline.
  • Commodities help bolster rand.
  • Long-term channel sucks in USD/ZAR once more.
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ZAR FUNDAMENTAL BACKDROP

The holiday period generally exhibits low volatility across financial asset classes with this year being no exception (thus far). The South African rand has been able to claw back marginal losses against the greenback after reaching yearly highs in late November.

Despite the Fed’s tightening approach, the dollar has turned lower which is typical over this period. The reason behind the dollar depreciation as measured by the DXY, is widely believed to be the bidding of U.S. companies shifting funds offshore for tax reasons.

The recent spike in South African COVID-19 cases (Omicron variant) earlier this year has been ticking lower while other developed nations including the U.S. remain elevated, favoring ZAR strength. However, uncertainty around the new variant as well as the Fed’s hawkish tilt could likely see an extension of this year’s rand weakness in early 2022.

SOUTH AFRICA COVID-19 NEW CASES:

South Africa new COVID-19 cases

Source: Refinitiv

Higher South African linked commodities prices including spot gold, platinum and iron ore have contributed to the recent rand price appreciation.

UPCOMING ECONOMIC DATA

Later today, both South African and the U.S. have medium impact events which should have minimal impact on the currency pair. Both metrics have shown similar downtrends since mid-2021 and may continue with today’s data releases.

USD/ZAR economic calendar

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

USD/ZAR DAILY CHART

USD/ZAR daily chart

Chart prepared by Warren Venketas, IG

Recent candlestick prints reflect the low trading volume and should continue as we go into the new year. I do not foresee much in the way of price volatility this week should market conditions remain constant. Price action shows the pair now trading below channel resistance after the Omicron inspired breakout in November. Rand strength still has room to run but caution should be exercised around the 50% Fibonacci level at 15.4289 which may provide a springboard for bulls.

Resistance levels:

  • 16.3547 – 38.2% Fibonacci level
  • 16.0000
  • Channel resistance (black)

Support levels:

  • 15.4289 – 50% Fibonacci level
  • 100-day EMA (yellow)

Contact and follow Warren on Twitter: @WVenketas

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