USDZAR bullish pennant suggests worst not over for South African rand
The USDZAR pair rose slightly as doubts started to creep back on South Africa’s reopening plans. The pair is trading at 18.50, which is slightly higher than this month’s low of 18.15.
USDZAR rises as South Africa starts to reopen
The South African government announced that it was starting to ease movements further as the number of new infections started to slow. In a statement, the government said that it will move to Level 3 of reopening by the end of this month. This move will allow more industries to reopen. In the statement, Cyril Ramaphosa warned that reopening too quick would lead to an unmanageable surge in new infections.
At the same time, many businesses are warning of risks to businesses and employment. A lobby group known as Business for South Africa said that more than 4 million jobs were at risk if the lockdown goes on.
According to Bloomberg, ProMeritum investment had made a big investment in the South African economy. The fund has allocated about a fifth of its fund to South African bonds. This is important because the fund has never lost money and it could spur more investments in the South African economy. This would in turn lead to more demand for the rand and a decline of USDZAR.
Bloomberg notes that South African bonds were the second-worst performers in the emerging markets after those from Brazil.
Looking at the daily chart below shows several things. First, we see that the USDZAR pair rose to an all-time high of 19.3385 in early April. Since then, the pair has found significant resistance near this level. Second, the pair has formed a bullish pennant pattern, which appears as a symmetrical triangle pattern. Most importantly, this pennant is nearing its tip, which is usually a sign of a breakout. Therefore, I expect the pair to breakout in the upside as bulls attempt to move above the 20.000 mark.
On the other hand, a close below 18.000 will mean that there are still sellers in the market, who will be keen to push the pair lower. This price is an important psychological level and also along the 23.6% Fibonacci retracement level.