USD/ZAR Forecast: Rand Opens 2022 in the Green After Broad-based EM Gains

[MongiIG]

RAND ANALYSIS

• EM’s start the year off with a bang.
• Commodities forecast a positive for the ZAR.
• Bullish flag pattern remains intact.

 

ZAR FUNDAMENTAL BACKDROP

2021 started strong for the South African rand but quickly faded midway through, resulting in a poor performance (-8.2%) against the U.S. dollar relative to its Emerging Market (EM) peers – see graphic below.

YTD CURRENCY PERFORMANCE VS USD (2021)

Source: Reuters

The battle with Omicron and COVID-19 as a whole continues into 2022 as rising cases endure in many parts of the world despite positive data around certain vaccines and their efficacy. The new year begins with markets favoring riskier currencies including the ZAR which has pulled back over the festive period last year. The dollar is primed for lift off in 2022 with a hawkish Fed set to close off the tapering process and could hurt EM’s across the board.

Commodities including the South African linked platinum, iron ore and coal are set to remain elevated this year and could pose an opposing force against a stronger dollar. Overall, the outlook remains bleak for the rand and central bank decision making by the South African Reserve Bank (SARB) will be crucial as the tug of war between economic growth, currency protection and inflation develops.

UPCOMING ECONOMIC DATA

Both U.S. and South African economic data are scheduled for today with U.S. Manufacturing PMI being the standout which is set for yet another decline. Trader’s should keep an eye out for any significant deviation from the estimates while exercise sound risk management technique.

Source: DailyFX economic calendar

 

TECHNICAL ANALYSIS

USD/ZAR DAILY CHART

Chart prepared by Warren Venketas, IG

The formation of the bull flag pattern (blue) extends into 2022 with USD/ZAR bears refusing for a topside breakout. The pullback comes as profit taking around the 16.0000 psychological level along with the fundamental risk on sentiment pushes prices lower.

Price action shows USD/ZAR trading near short-term support at the 20-day EMA (purple) which may provide a springboard for bulls to re-enter the fray. Channel resistance comes back into consideration (black) while traders look for the all important break above 16.0000 which should open up moves towards the 38.2% Fibonacci level at 16.3547.

Resistance levels:

• 16.3547 – 38.2% Fibonacci level
• 16.0000
• Channel resistance (black)

Support levels:

• 20-day EMA (purple)
• 50-day EMA (blue)
• 15.4289 – 50% Fibonacci level

 

By Warren Venketas, Analyst, 3rd Jan 2022. DailyFX