USD/ZAR Price Analysis: ZAR Could Rally If Budget Numbers are Pragmatic

Fundamental Analysis

Fueling the resurgent green back is progress being made between China and the US. With the later keen on striking what they call a fair deal, it had earlier promised to be a grinding battle of supremacy with negative ramification for the former, a key trading partner of South Africa. In reality, shocks emanating from this would help boost the Rand unless of course there are government intervention from both ends. All the same, it could turn out to be some false promises for the risk-off traders. After all, we have been down this route before and even with the assurance of Donald Trump that negotiations are okay and picks up today, what could spur market activity is nothing more than the assurance that US tariffs would either be delayed, reduced or even eliminated.

In a statement and as reported by Reuters, the White House said:

“The aim of this next round of talks is achieving needed structural changes in China that affect trade between the United States and China. The two sides will also discuss China’s pledge to purchase a substantial amount of goods and services from the United States.”

However, attitudes could quickly shift and sealing this is commitment and that means, a signed deal and delivery of agreeables. Meanwhile, US Retail Sales plunged to depths last seen in the last decade. But this was expected. With the government shutdown and federal workers starved off their paychecks, it was a domino effect and purse strings were tightened in response to Trump moves. Now that he has secured funding for the Southern border, our expectation is that retail sales will improve in the next announcement.

Meanwhile, we expect ZAR to gain if history is any guide. In the last ten year, the Rand often gain against the greenback and if past price movement will help determine future prices, it’s going to be a good few weeks for the Rand and Cyril Ramaphosa. With improving seasonal data and local political developments a few months before a general election, improvement around Escom and possible government intervention may prevent job losses–a worse case scenario if Cyril stands a chance to be re-elected. Besides, Finance minister Tito Mboweni will present the budget tomorrow–Feb 20. Assuming the budget is pragmatic enough and numbers don’t swing from those of Oct 2018, then odds are the credit rating firm, Moody’s won’t slash down the country’s ratings to sub-investment grade. Already, the firm has a stable outlook on South Africa and they expect the government to strengthen institutions while simultaneously increasing transparency. Even so, they add that the country’s economy will improve but will be nothing like those of early 2000s.

Technical Analysis – USD/ZAR

Prices are in a congestion and although the trend is bullish for the USD, over the last few years, the ZAR had an upper hand. All the same, back to back gains of ZAR mean some of previous USD gains were shaved. Note that USD bulls found support at the 50 percent Fibonacci retracement level with the tool anchored on the first bull wave between 2011 and 2015. So far, prices are ranging in lower time frames and in an effort versus results point of view, it is likely that ZAR will have an upper hand in the coming few months. However, that is subject to break below Aug 2018 bull bar where prices have since been oscillating in. Technically, that is bullish for USD but it appears that the green back is at peaks and the only confirmation is if bulls pump prices above 15.70 mark at the back of above average volumes exceeding five million.

In the daily chart, the trend is clear, bears are in control and at spot rates, USD/ZAR is trending at key inflection points. As visible from the charts, bulls are retesting a confluence point, a key resistance zone marked by the negative sloping trend line as well as the first level of resistance. Since USD/ZAR is range bound in higher time frames, the reaction at spot level could determine the short term trend where ZAR bulls could have an upper hand. Technically, a break above the resistance trend line would usher in bulls while liquidation could trigger a sell off below 13.90 could see ZAR retest 13.20 in the short term. On the flip side, a high volume break above 14.30 could see USD bulls retest 14.60–the first target and later 15.70–our second target.

In that case, this will be this week’s trading signal plan:

A bearish scenario

Sell Stop: 13.90


Target: 13.20

In case bulls takeover;

Buy: 14.30

Stop: 13.90

First Target: 14.60, 15.70

All charts courtesy of Trading View.

This is not Investment Advice. Do your Research.

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