The USDZAR continued on its downward trend, as the pair was hit by divergent fundamentals this Wednesday.
The US Dollar continues to face significant headwinds, carrying on from Tuesday as stimulus hopes continue to exert downward pressure on the greenback. In contrast, the South African Rand firmed once again after data released early Wednesday showed that the Business Confidence Index rose from the previous figure of 93.4 to 94.5 in January 2021.
The USDZAR is trading at 5-week lows, losing 0.09% on the day as at the time of writing. Passage of the $1.9 trillion coronavirus relief bill, along with increased fiscal spending and ultra-low interest rates, are expected to provide an environment that will see progressive weakening of the greenback in the medium-term and long-term. The latest CFTC positioning report also confirms that net shorts on the greenback are higher. Overall, this is expected to benefit emerging market currencies which are properly positioned, especially those
whose interest rates provide a significant differential.
Technical Levels to Watch
The double top with a failure swing on the daily chart served as the impetus for the downside push in 2021. Having taken out the neckline support at 14.89528, the USDZAR looks on course to attain the 14.54458 support level in a measured move. A breakdown of this area establishes a lower low, which sets the pace for continuation of the downtrend. This move would target 14.28370 as the initial target, with 13.97151 lining up as an additional barrier down south.
On the other hand, a retracement rally could set up a retest of 14.89528, with 15.21122 and 15.32751 serving as additional targets to the north.