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USD/ZAR Analysis: Oversold RSI Opposing Rand Fundamentals

USD/ZAR Analysis: Oversold RSI Opposing Rand Fundamentals

Warren Venketas, Analyst

USD/ZAR ANALYSIS

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FUNDAMENTALS POINT TO FURTHER RAND APPRECIATION

The South African Rand has exhibited substantial gains of recent, clawing back lockdown losses against the US Dollar. Market participants may be looking for a reversal of some sort with some technical indicators in support. The fundamental backdrop both globally and locally are stacked in favor of extended rand gains. Fundamental factors to consider:

Foreign Bond Holders:

The major selloff in South African sovereign bonds due to the recent downgrade by Fitch and Moody’s may be easing off which could aid further Rand strength. Local government bonds still provide attractive yields for foreign investors and with a possible COVID-19 vaccine on the horizon, this risk-on sentiment could support recent ZAR strength.

Balance of Trade:

With commodity prices on the rise , local exporter earnings are benefitting. The COVID-19 pandemic has reduced imports which have widened the gap between imports and exports resulting in trade surplus figures (see image below), providing some relief for Rand.

South African Balance of Trade data

USD/ZAR MONTHLY CHART

USD/ZAR monthly chart

Chart prepared by Warren Venketas, IG

The monthly chart gives a great overview of key levels on the USD/ZAR currency pair. The current 15.0000 support level can be seen as a key level going back to 2016 and has continued to provide high significance throughout with the level being tested multiple times post 2016.

The second important level can be seen by the blue upward trendline which could be sustained should price action respect the support level in November. This is likely with today being the last day in November. A close above support would provide a third point of connection for the trendline and will further supplement its importance going forward.

USD/ZAR DAILY CHART

USD/ZAR daily chart

Chart prepared by Warren Venketas, IG

The Relative Strength Index (RSI) puts the pair firmly in oversold territory (green) since the beginning of November. This oversold region has been steadily rising which is in contrast to the appreciating Rand (red). This is known as bullish divergence which has the potential for a price reversal to the upside. This technical analysis technique can be difficult to predict in terms of when the divergence could occur, so caution should be exercised before execution.

The short-term downward sloping trendline (red) will provide a gauge for bullish divergence should price break above. A confirmation break above trend resistance could see the 50% Fibonacci level (taken from February 2018 low to April 2020 high) which coincides with the 15.5000 psychological zone as an initial target.

Further Rand strength is favored as economic conditions seem to be skewed toward ZAR bulls. Last week’s swing low 15.0980, will be taken us initial support and thereafter, the 15.0000 major confluence level. This support level overlaps with the monthly trendline support line (blue) mentioned in the previous chart.

LOCAL DATA IN THE SPOTLIGHT

The Balance of Trade figure for October (12:00 GMT) will be a key announcement today which could cause price swings should the figure deviate significantly from estimates.

DailyFX Economic Calendar

DailyFX economic calendar

USD/ZAR: KEY POINTS TO CONSIDER MOVING FORWARD

  • RSI – Oversold, possible bullish divergence
  • Long-term: monthly trendline and 15.0000 support
  • Balance of Trade data

--- Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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