USDZAR Technicals Point to a Sharp Bounce After Mexico S&P Rating Cut

The UZDZAR pair rose is up by more than 1.25% today as traders react to the US fiscal stimulus and the decision by S&P Global to downgrade Mexico’s credit score. The South African rand has weakened by more than 25% against the USD this year.

The latest price action by the USDZAR pair comes as South Africa’s prepares for a nationwide lockdown. The lockdown will see most companies in the country closed as the government tries to halt the spread of Coronavirus. The number of confirmed Coronavirus cases in South Africa has risen to more than 1,000.

Traders are having South Africa’s credit rating at the back of their mind especially after S&P Global slashed Mexican credit score yesterday. The three main credit rating organizations, Fitch, S&P Global, and Moody’s, have placed South Africa’s debt rating to negative. Moody’s, the most vocal of the three has warned that it will likely downgrade the country to junk zone.

As I have written before, South Africa faces several serious challenges. Tax collections have lagged, the economy is in recession, the mining sector is dying, and the unemployment rate is soaring. Meanwhile, political temperatures have continued to rise, which is making it impossible for the government to perform. These problems will continue as the country starts a national lockdown.

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USDZAR Technical Analysis

On the hourly chart, we see that the USDZAR pair failed to breakout below the important support level of 17.2320. This level was the baseline of the descending triangle pattern shown in black above. At the same time, the pair is now attempting to bounce above the important resistance level shown in pink. I expect the pair to be bullish provided it moves past the current resistance at 17.5710. If it does, the next level to focus on will be 17.8462, which is the weekly high and where it double topped on Tuesday and Wednesday.

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