USDZAR
The USDZAR pair is down by more than 1.3% today, erasing some of the significant gains that were made yesterday. The pair is trading at 16.7193, which is lower than yesterday’s close at 17.000.
There are two primary reasons why the South African rand is significantly higher than the US dollar today. First, it is because of the overall weaker US dollar. As I wrote earlier today, the dollar index is sharply lower today as investors continue to react to the Federal Reserve chair statement last week. In the statement, he said that the bank will leave interest rates unchanged even after inflation rises to 2%.
The dollar is also easing because of the ongoing riots in the US and signs that the American economy will take a longer period to recover.
Second, the USDZAR is falling because of positive data from South Africa. Statistics released today showed that the manufacturing PMI rose to 57.3 in August from the previous 51.2. That jump brought the index to the highest level since March 2011. It sends a signal that the economy is bouncing back after months of contraction. So, will the South African rand rally continue?
A quick look at the daily chart of the USDZAR pair shows several things. First, the pair reached a multi-year high of 19.3137 in March. Since then, it has been in a strong downward trend. It first dropped to a low of 16.3367 in June and then retested the same level in July. Now, the USDZAR pair is in a downward trend, and is slightly below the 50-day and 100-day exponential moving averages. It is also slightly above the 50% Fibonacci retracement level.
Therefore, I suspect that the pair will continue falling as bears target the previous support at 16.3367. On the flip side, a move above the previous resistance at 17.7746 will invalidate this trend.
