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USD/ZAR Outlook: South African Rand Stable Ahead of Fed Announcement

USD/ZAR Outlook: South African Rand Stable Ahead of Fed Announcement

Warren Venketas, Markets Writer

USD/ZAR ANALYSIS

  • Loadshedding remains as Eskom’s woes re-appear
  • Rand-linked commodities edge higher
  • U.S. treasury yields reaction to Fed is key for EMs
  • USD/ZAR persists within key technical pattern
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RAND FUNDAMENTAL BACKDROP

Locally, South Africans power utility provider Eskom has come under fire once more as the longstanding plague of power cuts extended this week. Business interruptions and dwindling investor confidence did not hold back the recent gains made by the Rand which highlights the ever concentrated influence of the U.S. Dollar.

With U.S. treasury yields being the major talking point over the past few weeks, the uptrend has not dissipated although today has shown a slight pause – although 10-year yields remain above 1.6%.

USD/ZAR VS U.S. 10Y T-NOTE YIELD

 USD/ZAR vs u.s. 10 year yield

Chart prepared by Warren Venketas, Refinitiv

The FOMC meeting tomorrow will be closely monitored by USD/ZAR market participants as an inability by the Fed to address rising bond yields and inflation concerns may result in further yield increases which could significantly ruin recent Emerging Market (EM) currency gains. Markets may be slightly complacent in expectation of the Fed touching on these matters which again could spark price volatility across USD crosses.

USD/ZAR economic calendar

Source: DailyFX economic calendar

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South African commodity exports maintained their upward trajectory this week with Spot Gold, Platinum and Iron Ore all ticking higher which lead to additional Rand strength.

TECHNICAL ANALYSIS

USD/ZAR WEEKLY CHART

USD/ZAR weekly chart

Chart prepared by Warren Venketas, IG

Price action on the weekly chart continues to consolidate within the medium-term rectangle pattern (yellow) awaiting a breakout either above or below. At this point it is difficult to find a directional bias as markets look for further fundamental stimulus.

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USD/ZAR DAILY CHART

USD/ZAR daily chart

Chart prepared by Warren Venketas, IG

Price action remains firmly below the psychological 15.0000 resistance zone as several unsuccessful attempts to break above can be seen last week. Further downside will bring the January 21 swing low at 14.7633 into consideration thereafter, 14.5000 support zone will serve as the subsequent target. This zone aligns itself with the 61.8% Fibonacci as well as the lower bound of the weekly rectangle pattern mentioned above.

From the bullish perspective, key levels to monitor are the 15.0000 and January 28 swing high at 15.3801.

The Relative Strength Index (RSI) has now dipped below the 50 midpoint which is indicative of bearish momentum. This should be taken lightly before the FOMC meeting tomorrow as the outcome of the meeting will likely provide a short-term directive on the USD/ZAR pair.

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USD/ZAR: KEY TECHNICAL POINTS TO CONSIDER

  • Weekly: Rectangle pattern still unfolding
  • Daily: 15.0000 resistance
  • 15.3801swing high
  • 14.7633 swing low
  • 14.5000 support

--- 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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