The South African Rand (USDZAR) is under pressure this morning, as the latest South African GDP reading showed that the economy contracted by 0.6% in the third quarter. Economists had penciled in a quarterly growth of 0.1%, a sharp drop from 3.2% in the second quarter, thus today’s weak reading sent ZAR buyers to the exit.
The South African central bank reported on November 21, that they think that the South African economy will remain weak in the fourth quarter due to trade wars and geopolitical tensions. Also, at the latest rate meeting two members voted for a rate cut, while three voted to keep rates unchanged, yet today’s soft GDP reading might tilt the odds for a rate cut at the next meeting.
USDZAR Technical Outlook
The South African rand was performing well against the US Dollar, but the soft GDP reading managed to trigger support of the USDZAR pair just above the September low of 14.49.
The same low acted as support in October. As the support level has been tested three times in the last few months it will remain an important level for traders, and as long as the price trades above the low the USDZAR might be able to bounce back, and might test the November 22 high of 14.85. A break to the November 22 high will probably mark the resumption of the long-term bullish trend that has dominated the South African Rand in 2019.
However, if the price trades below the September low of 14.49, the price might be able to reach the trend-line support level at 14.2795, and if this level holds then the USDZAR might be able to stage a significant bounce and triggered a resumption of the long-term bullish uptrend in the USDZAR.
Forex traders have a few ways of trading the USDZAR depending if they think the weak South African data will continue to dominate price action or if they think global sentiment will dominate.
Traders betting on a weaker rand on the soft GDP figures will probably try to buy near the September low, alternatively wait for breach to the November 22 high as a break to the high will shift the trend in their favor. Forex traders anticipating a continuation of the upbeat mood in the stock markets and emerging market currencies will probably wait for a break to the September low as it will probably kick start the downtrend from the August 19 high at 15.49.More content