USD/ZAR: Correction in Progress, But Watch Out for Fed’s Powell

A general risk-positive tone is playing out in the markets this Tuesday. This has led to generalized weakness of the US Dollar and provided a template for some profit-taking in trade positions that have benefitted from USD strength in the last week. 

On the USD/ZAR, a currency pair that acts as a barometer for interest rate differentials between the US Dollar and emerging market currencies, the Rand has gained 0.89% on the greenback this Tuesday. This follows the 5% gain recorded between 9 June and 11 June and the resurgent move of 16 June. However, both movements failed to breach the 16.07356 resistance despite several violations to the upside. The formation of two pinbars at that resistance, formed via rejection at this barrier, prompted today’s selloff on the pair.

However, the markets need to watch out for the testimonies of the Fed Chair Jerome Powell in front of the US Senate Banking Committee and House Committee on Financial Services. He will address questions following a prepared address, and unscripted answers regarding US monetary policy could create volatility. These events, scheduled for tomorrow and Thursday, will be the fundamental catalysts for further price action on the USD/ZAR.

USD/ZAR Outlook

The corrective move from 16.07356 looks set to challenge the support at 15.73828, formed by the prior lows of 29 April and 15 June 2022. A breakdown of this level will aim to complete a measured move at the 15.38525 support. However, this move would require the bears to degrade the pivot at 15.57476, the site of the 25 April/25 May lows. 

On the flip side, restoration of the uptrend can only come from a break of 16.07356. This scenario would see the bulls with a chance to aim for 16.25901. However, if the bulls uncap this new target, they would have clear skies to pursue a prior high of 20 October 2020, which rests on 16.56418.

USD/ZAR: Daily Chart