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ZAR

Pre-FOMC; When in doubt, zoom out.It is guaranteed to be a volatile week given the stacked economic calendar. Tonight, the Fed is expected to hike interest rates by 25bps, and on Friday we have the always highly anticipated US non-farm payroll data. As per my previous idea, I got the timing wrong for my expected move to 18.55 but I’m still holding my buy orders in placed around the 18.21 level which coincides with the 50-day MA and the black 61.8% Fibo retracement rate. The rand was on the backfoot yesterday which saw the pair push up into the red resistance range between 18.50 and 18.55. The dollar is however weaker across the board this morning which is allowing the rand to pull the pair lower towards the navy-blue downward channel’s neckline. It seems as if the pair broke out of this downward channel but don’t rule out a retest of the upper neckline of this channel (support range between 18.28 and 18.33). A break below this support range will allow the pair to re-test 18.21. 18.21 is a critical support level, a break below will invalidate my expected move above 18.55 and will allow the rand to pull the pair into the blue support range between 18.00 and 18.10. The resistance rates to watch sit between 18.50 and 18.60. A break above this range will confirm my expected 5-wave impulse and the test of the yearly high at 18.71. The daily indicators are rand negative. The MACD is holding a buy signal while the RSI still has plenty room to move higher before sliding into overbought ranges. Fundamentals (latest US data prints): The writing is on the wall for a stagflation environment over the next 3-5 years. The latest US GDP print for the 1Q2023 came in at 1.1%, down from 2.6% QoQ. It is clear that the US and the Fed won’t avoid a recession or the “soft landing” bs they refer to. But wait there’s more, the recent interest rate cycle has not managed to contain inflation, gasp, with the latest PCE price index rising by 4.2% in 1Q2023, up from 3.7%. A low growth inflationary environment does not bode well for risk assets such as the rand and the recent fragilities in the US banking sector will only increase investor risk-off sentiment. All these factors are rand negative. Zooming back to the present, yesterday’s trading saw the DXY close lower after it touched a three-week high of 102.409. The DXY is firmly on the backfoot this morning and is currently back below the 102 handle in the lead up to the Fed hike. There were also some peculiar moves in the US bond market in yesterday’s session in the lead up to today’s Fed rate decision. US bond yields cratered as the US 10-year yield fell from 3.575% to 3.429% while the shorter dated 02-year yield fell back below 4%.
Long
by Goose96
USDZAR update pre-US GDP resultsThe pair is currently testing the top of the blue downward channel. A break above 18.40 will allow for a move higher north of 18.50 while a break below 18.21 will invalidate this move higher. I’m personally positioning myself for more rand weakness and a move north of 18.50 given the current risk-off back drop. My strategy is to place buy limit orders around the 18.21 support rate (small green box). I doubt the pair will break above the downward channel in today’s session given the highly anticipated US GDP results which will only be released tomorrow. SA markets will also be closed tomorrow which will increase the volatility in the pair’s price action. In my previous USDZAR idea I predicted that the pair would climb higher to test the resistance rate around 18.50 if it were to break above 18.33. The resistance rate at 18.33 however held its ground and the pair fell below the support rate of 18.11 which invalidated my previous idea. Since then, the rand managed to pull the broad-based weaker dollar all the way down onto the psychological rate of 18.00. The pair bounced aggressively off the 61.8%n fibo retracement rate of 18.01 in the last week which is indicative of a double bottom at this rate and the start of a 5-wave impulse. Fundamentally it's difficult to gauge the risk sentiment in the markets but the action in yesterday’s session is pointing to a fear trade. The both the US02year and US10year yield fell more than 10 basis points while the DXY climbed roughly 0.6% in yesterday’s session. This rush towards the safety of the bond market was largely driven by weak earnings results from the US banking sector. Tomorrow’s US GDP results will be imperative to the Fed rate hike expectations which seems to be fading given the fragilities in the US banking sector and the ongoing US debt ceiling debacle. Given this backdrop risk-off sentiment seems to have the upper hand which is rand negative. There are however some rand positive factors. The first is the SARB’s aggressive inflation fight. The SARB released their monetary policy review yesterday and inflation expectations remain well above the SARB’s 3-6% target band. This means the SA repo rate will remain high even after the SARB’s aggressive cumulative 150 basis point hike from the past three MPC meetings. The SARB’s nominal repo rate is currently at 7.75% which is rand positive given the carry trade appeal it creates for the rand. Another positive factor is the strong platinum price which has risen roughly 25% since February this year. High commodity prices strengthen the SA trade balance which is rand positive (the rand tends to behave like a commodity currency). In terms of technical indicators, the daily MACD indicator has crossed to a buy signal and the RSI, currently at 56, has room to move higher before hitting overbought zones. The shorter 1H and 4H time frames are however sitting in overbought zones which has me expecting a bit of a pull back towards 18.21 before the pair moves higher. The rate of 18.21 is the 38.2% fibo retracement rate which coincides satisfyingly with the pairs 50-day MA. The DXY is also pulling back in early morning trade which could give the battered rand some room to breathe.
Long
by Goose96
4
USDZAR pre-SA CPIThe support level of 18.01 held its ground last week and the rand has been on the backfoot so far this week. The pair climbed to a high of 18.33 (the support turned resistance on the 23.6% Fibo level) on Monday. Although the rand managed to pull the pair lower onto the 50% Fibo level at 18.11, I believe there is further losses on the cards for the rand as the week progresses. The latest CPI results for SA will be released in a few minutes which could be a catalyst for another move higher toward the red range between 18.46 and 18.54. Fundamentally the rand weakness looks poised to continue. The upbeat China GDP - and industrial production results released earlier this week failed to generate investor optimism and global metal prices as well as oil prices are starting to cool which are all rand negative factors. In terms of the DXY, the broad-based dollar strength has gained some traction since Friday’s aggressive push higher. Looking at the technical indicators, the 4H MACD is holding a weak buy signal while the RSI has plenty of room to move higher. The story is mostly the same on the daily timeframe with the MACD holding a buy signal and the RSI sitting around 51.50. (See the linked idea for a longer-term view)
Long
by Goose96
4h USDZAR updateYesterday’s pullback was a bit deeper than expected following the US initial jobless claims result. The US jobless claims came in higher than expected and coupled with the lower-than-expected US CPI results from earlier this week, markets are betting on a Fed rate pause sooner than initially anticipated. My record of trying to predict the Fed has been poor so I’ll just stick to my technical and fundamental analysis. The rand managed to pull the pair onto the 61.8% fibo retracement rate at 18.01 following the jobless data from the US which was the second wave of the next 5-wave impulse. I expect the third wave to push the pair towards the resistance rate of 18.72 (the current yearly high). A break below 18.01 will however invalidate this expected move and the 5-wave impulse. The next resistance rates to keep an eye are 18.11, 18.21 and 18.33. A break above 18.33 will confirm the move to 18.71. Technically on the 4h, the RSI bounced off the oversold zone and the MACD is rolling over and a cross-over buy signal seems imminent. The daily MACD is still holding a buy signal, all of which is rand negative. Additionally, the DXY is heavily oversold and a bounce in the broad-based dollar strength could create headwinds for the ZAR.
Long
by Goose96
2
USDZAR next 5-waveThe USDZAR pair completed an ABC corrective wave at the end of March after the higher-than-expected 50bps rate hike from the SARB allowed the rand to pull the pair into the support range between the 50%- and 38.2% Fibo retracement rates at 17.68 and 17.92, respectively. Since the start of April, the dollar (DXY) has found some support in the range between 101.36 and 101.81 and as a result, has the rand on the ropes heading into the 2Q2023. The aggressive bounce out of the blue support range is indicative of a first impulse wave and I suspect this next 5-wave impulse will see the pair complete the 5th wave of its major cycle which will push the pair onto its 2020 peak at 19.35. (Please see attached my previous idea for the 1H2023 for a wider view) Technically there is a buy signal on the MACD indicator which is rand negative, and the daily RSI has room to move higher before hitting overbought zones.
Long
by Goose96
USD/ZAR pre-SARB rate decision.The SARB will release their latest interest rate decision on Thursday and expectations are pointing to another 25bps hike which will push the repo rate to 7.50%. I haven’t posted an idea on the pair in quite a while but a whole lot has happened since my last idea. March has been a very turbulent month for the local unit, but the rand is holding up relatively well in the month of March given the recent fragilities in the US banking sector. As things stand the rand has depreciated just over 1% against the dollar this month. The rand however slid to a three year low of 18.71 earlier this month but it did manage to pull the pair to a monthly low of 18.01 on the back of a broad-based weaker dollar. Currently it seems as if the pair has completed an abc corrective pattern following the 5-wave impulse which saw the pair climb from the yearly low 16.70 to 18.71 earlier this year. In the beginning of the year, I predicted that the pair would hit the 2020 high of 19.36 in the 1H2023 (I tagged the idea in this post). I’m not prepared to stick my neck out just yet to confirm my previous idea haha however a break above the yearly high of 18.71 could confirm the move as it will signal another impulse move higher. A re-test of the pair’s 50-day MA rate currently at 17.90 is still on the cards given the down trend on the daily RSI and sell signal on the MACD. The 50-day MA coincides with the 38.2% Fibo retracement rate of 17.91 and we would need a convincing break below this level in order to invalidate the move north of 19.00. Currently the 23.6% Fibo rate of 18.22 and the neckline of the parallel channel is holding support for the pair. Fundamentally there is not much supporting the rand. Commodity prices had a woeful first quarter off the back of the 10%+ declines in brent crude oil. Credit markets (US 10year yields) have seen massive daily swings following the fragilities in the banking sector which is eroding risk-on investor sentiment. The only thing that will be fundamentally rand positive is some degree of stabilisation of the US debt market (US 10-year bond yields) and higher commodity prices. As long as the credit markets remain unstable the rand won't be able to gain from its carry trade advantage. In summary; critical supports = 17.90 and 17.68, major resistance = 18.60 and 18.71.
by Goose96
Rand relief still in playI’m just revising my previous idea. My view for a pullback has not changed. On the 4h the MACD looks set to cross to a sell signal while we still have a degree of bearish divergence on the RSI. A break below 18.35 will allow the rand to pull the pair lower towards the 23.6 Fibo rate at 18.10. I do however expect some support in the range between 18.17 and 18.22. The longer-term move towards the parallel channel neckline and blue 61.8% Fibo retracement rate of 17.83 (as per my previous idea) still seems probable given the overbought status of the dollar across the board. I however do not see the rand pulling the pair below 17.83-17.87 at this stage.
Short
by Goose96
Rand pullbackTechnical indicators and fundamentals are lining up for a reasonable rand pull back as per my previous idea. I expect the rand to pull the pair lower onto the 23.6% Fibo retracement rate and psychological rate of 18.00. A break below 18.00 will see the pair fall onto the critical support on the blue 61.8% Fibo retracement rate of 17.84 which coincide with the neckline of the broken upward channel and the black 38.2% Fibo retracement rate. Fundamentals which are supporting some relief for the battered rand are most notably the easing of the selling pressure on US bonds. The US 10-year yield declined for the past two sessions after touching a high of 3.975% and is currently sitting at 3.865%. This will in turn cause the upward pressure on the dollar (DXY) to lose momentum. Additionally selling pressure on US equity markets are also subsiding. All of these factors are rand positive as it supports risk-on investor sentiment. Technically on the 4h there is bearish divergence on the RSI while we have a sell signal on the MACD. On the daily, the MACD buy signal is rolling over while the RSI is deep in overbought zones. All of which are rand positive.
Short
by Goose96
1