Emerging markets have started the year well. The iShares Currency Hedged MSCI Emerging Markets ETF (HEEM) has jumped by over 8% in 2023. Similarly, several emerging market currencies have outperformed the US dollar as the DXY index has plunged to a multi-month low. The USD/ZAR has barely moved this year and is about 8.11% below the highest point in 2022.
USD/ZAR weekly chart outlook
Conducting a multi-timeframe analysis is one of the best approaches to find good trading opportunities because it tends to filter the noise created by one chart timeframe.
The USD/ZAR weekly chart is sending mixed feelings. We see that the chart has been in a bullish trend, having soared from $13.40 in 2021 to a high of 18.60 on October 10 of 2022. As it rose, the pair created an ascending triangle pattern. And the most recent pullback happened after the pair tested the upper side of this channel.
A closer look at this channel shows that it is actually a broadening wedge pattern. In price action analysis, this pattern is usually a sign of a reversal. This implies that the South African rand comeback that started on October 10 could continue until the USD/ZAR drops to about 16.0. 16 is both an important psychological level and also the lowest point on June 27th last year.
The bearish outlook on the weekly chart is negated if bulls push through the psychological point at 18.0. Such a move will see them push the pair to the upper side of the wedge at about 18.55. There is also another target at 19.35, the highest point on April 6 2020.
USD to ZAR daily chart analysis
The weekly chart has a major difference with the daily one as we can see below. While the weekly chart is in an overall bullish trend, this one is moving in a downward trend. It is consolidating at the 38.2% Fibonacci Retracement level and forming a descending channel that is shown in yellow. USD/ZAR is also comfortably below the ascending trendline that connected the lowest points since April last year.
Therefore, with the USD/ZAR pulling back slightly below the upper side of the channel, I suspect that bears are prevailing. This could see them retest the lower side of the channel at 16.70, which is in line with my recent South African rand forecast. A breakdown below will bring the 50% Fibonacci Retracement level at 16.50 in view. The invalidation point of this view will be a move above 17.50.