South African Rand Forecast:
- USD/ZAR Tests key Psychological Level
- Fibonacci Retracement continues to hold as support
- Price Action remains below Moving Average
Dismal Economic Data Weighs Heavy on the Rand
South Africa’s unprecedented GDP figures sparked panic after Statistics South Africa (Stats SA) confirmed that GDP had contracted by 51% in Q2 2020 and by 17.1% YoY (Q2), SA’s largest annualized contraction in history.
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Although the emerging market is still experiencing the first wave of the Coronavirus pandemic, the easing of lockdown measures boosted hopes of a economic recovery but optimism was short lived after power utility, Eskom, reimplemented load shedding (rolling blackouts), hindering business productivity.
Over the next six weeks, focus will be on the mid-term budget speech, where South Africa’s Minister of Finance, Tito Mboweni will discuss the road ahead, which is definitely not going to be an easy one. This is expected to take place between 19-26 October, although no official has been confirmed. With Tax revenues decreasing and government debt increasing at a rapid rate, risk sentiment will likely be influenced by the policy plans discussed.
Fibonacci Retracement Holds Bears at Bay
In August, the ZAR managed to strengthen against its USD counterpart, mainly attributed to Dollar weakness, but bears were unable to break through the 50% Fibonacci retracement level (16.635) which continues to hold as support.
USD/ZAR Weekly Chart
Chart prepared by Tammy Da Costa, IG
Moving Average Provides Resistance
Although the ZAR has fallen against the US Dollar, bulls were still unable to break above 17.00, a key psychological level. Meanwhile, the 50-day Moving Averag e has formed an additional resistance level, creating downward pressure on the pair.
USD/ZAR Daily Chart
Chart prepared by Tammy Da Costa, IG
USD/ZAR Strategy Ahead
While economic uncertainty, corruption and mismanagement of funds have raised concerns about the recovery of the Rand, the upcoming US elections and rising tension between America and China, are additional factors to consider moving forward. As elections approach, volatility between the pair is expected rise, which may see price action gaining momentum in either direction.
For now, the 17.00 level continues to hold as resistance. If this level is broken, 17.276, the 38.2% retracement, would be the next level to watch out for.
However, if South Africa is able to provide a solid plan to boost economic recovery, bears may be able to exert downward pressure, in an effort to break below 16.635, the 50% Fibonacci level which holds as support.
--- Written by Tammy Da Costa, Market Writer for DailyFX.com
Contact and follow Tammy on Twitter: @Tams707
