USDZAR: Can the South African rand maintain the momentum?

The USDZAR pair dropped slightly mostly because of the overall weakness of the US dollar. The dollar index, which measures the performance of the USD against a basket of currencies declined by more than 20 basis points.

South African rand gains

The South African rand strengthened against most of its peers. It rose by more than 20 basis points against the British pound and by about 18 basis points against the Australian dollar.

The USDZAR pair declined mostly because of the progress made being made to develop a coronavirus vaccine. Yesterday, a report by Moderna showed that the vaccine that it is developing was seeing important positive results. Other companies are also developing a vaccine and showing positive results.

The dollar declined after the news because of risk aversion. If the vaccine can be found, the thinking is that other currencies will gain because of the rising demand from investors.

The South African rand has also strengthened because of the progress the country has made on coronavirus. According to Worldometer, the country has confirmed more than 16,000 infections and about 286 deaths. While the number of new infections is rising, analysts expect the numbers to fall in the coming weeks.

Also, South Africa reopening, many industries and companies are expected to restart their operations. While the unemployment rate is expected to soar, the stimulus package announced a while back will help to support the economy.

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USDZAR technical outlook

The USDZAR pair is trading at 18.2915. On the daily chart, the pair has formed a bullish pennant near the all-time high of 19.3490. The price is now at the lower side of this pennant pattern. It is also slightly above the 23.6% Fibonacci retracement level and the 50-day and 100-day exponential moving averages. Therefore, I expect the pair to resume the upward trend as bulls attempt to retest the previous high of 19.3490.

However, this thesis will be invalidated if the price manages to move below the lower line of the bullish pennant. The downward trend will be confirmed if the USDZAR pair will move below the 23.6% retracement level at 18.1000.

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