USD/ZAR Price Analysis: A US-China Trade Deal Will Trigger ZAR Demand

ZAR and USD Latest News

In the emerging markets, South Africa is a luminary and one of the leading economies in Africa. Factors affecting its performance is therefore anchored at fundamental events related to China—one of the largest project funders in Africa and without a doubt with strong ties to South Africa. Even though the government bailing out Eskom for $1.6 billion is good news, ZAR came under renewed pressure last week, closing lower against the green back thanks to Trump’s comments.

After failing to strike a deal with North Korea in Vietnam, Trump said he was ready to walk out of the trade deal if China were not good enough. Even so, his economic advisers remained optimistic insisting that progress was good and an agreement may be struck.

Chinese representatives are ready to make structural changes and are shelving ideas of retaliatory tariffs should an agreement failed to be reached. So, all in all, despite the hard liners, both sides are ready to make concessions. Sources privy to the discussion say the US will be ready to end their $200 billion tariff only if China makes concession.

An analyst at Peregrine Treasury, Botes Bianca notes:

“When looking at the holistic picture, a potential positive outcome from the US/China trade talks could be the last “good news” for emerging markets for a while, as geopolitical tension, declining global GDP, and populism all threaten risk appetite”

Add this to Trump attacking the US Fed for their decision of raising interest rates, their propensity of “liking a strong USD” and a possible meeting between Trump and Xi Jin Ping, there are strong indications that the ZAR and other high beta currencies will rally as risk appetite kick in weakening the USD.

USD/ZAR Price Analysis

USD/ZAR Price Analysis

In light of the above development and the real possibility of an agreement, we are net bullish on the ZAR. Encouragingly, our position is backed by a combination of ZAR favorable candlestick arrangement as well as bullish fundamentals.

A look at the chart indicates that ZAR bulls may take over. Note that prices are actually retesting the main resistance trend line and even though USD bulls pushed prices above the 14.10 level, the only way for buyers to be in control if price rally above 14.35 complete with high trade volumes above 410k registered on Feb 21.

That will align well with price action realignment of Feb 21 as bulls of Jul 2018 flow in a trend resumption phase. On the reverse side, a desirable and a probable harmonious trend for the ZAR is if prices reject higher highs and reverse Friday losses and push lower for 13.80. The level is significant in our analysis and as long as prices trend above this mark, USD bulls are in charge.

Like in our last USD/ZAR price analysis, we said that 13.80 is our sell trigger and ideally, if volumes accompanying this new found trend are high above recent averages of 220k and more important exceed 410k of Feb 21, it is likely that ZAR bulls will drive prices to 13.20 and later 13.

This week’s USD/ZAR trading plan will be as follows. We are ready for both options:

A bearish scenario

Sell Stop: 13.80

Stop: 14.30

Target: 13.20

In case bulls takeover;

Buy: 14.35

Stop: 13.90

First Target: 14.60, 15.70

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