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USD/ZAR Outlook: Strong Open For South African Rand Ahead of U.S. PMI

USD/ZAR Outlook: Strong Open For South African Rand Ahead of U.S. PMI

Warren Venketas, Analyst

RAND ANALYSIS

  • South African rand up 20c against the dollar.
  • Riot aftermath anticipated in upcoming economic data.
  • Technical analysis could point to fading downside.
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ZAR FUNDAMENTAL BACKDROP

RAND BUOYED BY EXTERNAL GLOBAL FACTORS

The rand started the week on the front foot up roughly 1.3% (at the time of writing) against the U.S. dollar. Support sourced from stronger rand linked commodities like iron ore, platinum and gold along with a weaker greenback – dollar index (DXY) down 0.17%.

GET YOUR Q3 RAND FORECAST HERE!

U.S. MANUFACTURING PMI’S IN FOCUS LATER TODAY

U.S. manufacturing PMI is due later today (see calendar below) from both ISM and Markit sources. Both are expected to print higher than previous data and any surprise either way could result in significant price fluctuations for the USD/ZAR pair.

From the South African perspective, the ABSA Manufacturing PMI figure for July was 43.5 which is notably less than the prior print of 57.4. Effects from the recent riots and looting in two major provinces is likely a major contributing factor. As a general rule of thumb, when manufacturing PMI data is above 50 the economy is deemed to be expanding and vice versa.

USD/ZAR ECONOMIC CALENDAR

Econ calendar

Source: DailyFX

TECHNICAL ANALYSIS

USD/ZAR 4-HOUR CHART

USDZAR 4 hour chart

Chart prepared by Warren Venketas, IG

USD/ZAR fell below key support at the 61.8% Fibonacci (14.5030) – Fibonacci retracement taken from February 2018 lo to April 2020 high. This follows the shooting star candlestick pattern I mentioned in last week’s analysis which has since unfolded as expected.

Today’s bearish move is still seeking support as it clears the 14.4000 horizontal level. The bearish EMA crossover last week has also played out with the 20-day EMA crossing below the 50-day EMA respectively.

With this in mind, the Relative Strength Index (RSI) has entered oversold territory (green) after the current price action downtrend. Oversold signals on the RSI could point to fading downside and the potential for a price reversal in favor of the below resistance levels.

Resistance levels:

  • 14.5030
  • 14.4000

Support levels:

  • 14.3365

--- 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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