The US dollar continues to lose ground against the South African rand currency as the pair looks set to post its tenth straight month of losses on the foreign exchange market. Overall weakness in the US dollar index has been the main driving force behind the decline in the USDZAR.
Following US Treasury Secretary Janet Yellen’s testimony earlier this week the US dollar index has fallen sharply from a one-month trading high. Emerging market currencies, such as the South Africa rand, have performed extremely well against the greenback.
The rand started to falter against the greenback at the start of the year due a new strain of the COVID-19 virus being detected in South Africa, although weakness in the US dollar has caused the pair to reverse course.
The ongoing high infection rate of COVID-19 has been particularly brutal on the South African economy, which was already faltering prior to the pandemic. Recent data has showed that the mining sector in South Africa has taken a hit, however, optimism is returning as the vaccine rollout starts to take effect in Africa’s second-largest economy.
Weakness in the South African mining sector has also been offset by the price of gold, which has helped miners maintain profitability. Gold staged a notable rally this week, which also helped underpin the bid-tone towards the rand.
Yesterday, the South African economy released retail sales data which a -4.0 percent year-on-year decline during the month of November. The Reserve Bank of South Africa kept rates unchanged yesterday which placed further pressure on the USDZAD pair as they talked-up the domestic and global economy.
Unless US bond yields start to rise and inflationary pressures start to return to the US economy then further downside in the USDZAR pair is expected, as traders and investors factor in continued US economic weakness and more stimulus.
USDZAR Short-Term Technical Analysis
The four-hour time frame shows that the USDZAR pair is under heavy technical pressure while trading below the $14.80 level. This is a key former breakout area, and an area that bulls need to defend to stop the USDZAR pair falling towards the $14.00 area.
Price has also broken beneath the bottom of a large falling wedge pattern, Typically, these patterns are bullish, so it underscores just how bearish the USDZAD pair is at the moment.
Source by ActivTrader.
The only bright spot for bulls at the moment is the positive MACD price divergence on the mentioned time frame, which extends up towards the $15.00 level. This may be an area to watch out for another sharp reversal or a potential recovery back towards $15.20.
USDZAR Medium-Term Technical Analysis
Looking at the daily and weekly time frame, the central feature remains a large falling price channel, which the USDZAR has been trapped inside since March of last year.
Source by ActivTrader.
According to technical analysis the price channel is located between the $14.00 and $15.80 levels. A technical breakout of $2.00 should take place once price definitively moves either sides of the channel.
Due to the ongoing negative price trend and short-term technicals it would seem that bears are preparing to take the USDZAR pair towards the bottom of the price channel.