USDZAR: South African Rand Set to Roar Again – Head & Shoulders Analysis

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Written By: Crispus Nyaga
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    Summary:
  • The USD/ZAR is bouncing today but a head and shoulders analysis is pointing to more strength for the South African rand in the near term.

The USDZAR pair is up by more than 1% as investors react to the weak inflation data from South Africa and the overall strong dollar. The South African rand has also fallen against the euro and British pound.

The South African rand has been on an upward trend against key currencies mostly because of the falling number of new infections. The number of daily infections has dropped from more than 13,000 in July to slightly above 1,000 yesterday. In total, the country has confirmed more than 718k cases and about 19,000 deaths.

In a report earlier today, the South African statistics bureau said that the consumer price index declined from 3.1% in August to 3.0% in September. On a month-on-month basis, the prices remained unchanged at 0.2%. At the same time, the core CPI, which excludes the volatile food and energy products, remained unchanged at 0.2% and 3.3% on a MoM and YoY basis, respectively.

The USDZAR pair is also rising because of the overall strength of the US dollar. The dollar index has jumped by 0.50% as investors rush to its safety. This is because the pandemic is getting out of hand in most countries even as a vaccine remains elusive. As such, when global risks rise, the dollar usually rises because of its role as a safe-haven currency.

USDZAR technical outlook

The daily chart shows that the USDZAR pair is rising for the second consecutive day. The pair has also formed a head and shoulders pattern. It is currently in the right shoulder and below the 15-day and 25-day exponential moving averages. Also, it is along the 50% Fibonacci retracement level. It is also below the descending green trendline that connects the highest levels in August and September.

Therefore, even with the current jump, I suspect that the price will continue falling as bears aim for the next support at 15.90, which is the 61.8% retracement. However, a move above 16.70 will invalidate this trend.

South African rand technical chart

Written By: Crispus Nyaga

Crispus Nyaga is an analyst and consultant with more than 8 years of experience. He started trading Forex while completing his BSc degree and he has worked for brokers like OctaFX, easyMarkets, & Capital. He has also contributed widely in leading websites like rkdream.com, SeekingAlpha, iNvezz, DailyForex, and BanklessTimes. In 2017, Crispus completed his MBA.

Published by
Written By: Crispus Nyaga