Breakout Possibility Ahead for Rand Bulls

USD/ZAR ANALYSIS

  • Roller coaster 2020 for the Rand
  • USD/ZAR still heavily influenced by US Dollar
  • Potential for further Rand strength

A LOOK BACK AT THE RAND IN 2020

2020 was a year of ups and downs for the South African Rand, with levels ranging from 13.93 to 19.35. The year began with the USD/ZAR exchange rate at 14.00 and ended at 14.69 which as it reads may seem like an uneventful year. Most of the volatility in price sourced from the Coronavirus pandemic and thereafter global risk sentiment and US Dollar consequence.

Chart prepared by Warren Venketas, IG

South Africa’s economy has been negatively impacted by the pandemic but many underlying issues have not come to light particularly in the currency market as the weak US Dollar has continued to overshadow any form of local underpinnings.

TECHNICAL ANALYSIS

USD/ZAR 4-HOUR CHART

USD/ZAR 4 hour chart

Chart prepared by Warren Venketas, IG

Since mid-December price action has consolidated between 14.5000 and 14.7500 (grey) until yesterday, which provided a push above this short-term resistance level. Support remains firmly between the 61.8% Fibonacci level (14.5606) and 14.5000. The longer term trend remains rooted to the downside despite the Relative Strength Index (RSI) suggesting short-term bullish momentum.

Near term price action indicates 14.9126 as initial resistance for USD/ZAR bulls which may hold and push price down back into the consolidation zone. Traders trading in line with the trend (down) may likely be holding out for a breakout below the support zone mentioned above. This would be a significant break as February 2020 lows will come into focus.

US DOLLAR REMAINS AS THE MAIN ATTRACTION THIS WEEK

The US is the focus for high impact events this week with several important announcements (see economic calendar below). These will likely provide price swings in the USD/ZAR pair particularly if there is major deviations from consensus expectations.

Another important event is the “Georgia Senate Runoff” which could drastically alter the current US Dollar landscape and therefore the USD/ZAR as well.

DailyFX economic calendar

Source: DailyFX Economic Calendar

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USD/ZAR: KEY POINTS TO CONSIDER MOVING FORWARD

Going into 2021, the Rand may benefit from expectant global recovery and search for yield despite rising COVID-19 cases locally. Vaccine optimism will linger as countries begin to rollout doses across the world. South Africa’s ratings downgrade and economic woes may not be enough to hold back ZAR strength until such time as the global affect dissipates. Global and local monetary policy will likely continue to support growth prospects and should favor emerging markets currencies including the Rand.

  • Breakout below support
  • Dollar weakness

— Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas

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