USD/ZAR Outlook:
Political Pressure Intensifies
Although South Africa is still experiencing the first wave of the Coronavirus pandemic, the emerging market[1], which was already in a recession prior to the pandemic, is struggling to recover and regain investor confidence. Following on from Cyril Ramaphosa’s unveiling of an economic recovery plan yesterday, the market reaction reiterated the fact that investors are losing confident in the government’s ability to carry out these plans. While income disparities and political instability are additional factors to consider, it appears as if South Africa’s road ahead is definitely not going to be an easy one.
Meanwhile, with only 18 days to go until the US presidential elections, the uncertainty around additional stimulus is raising concerns regarding the economy’s ability to recover.
USD/ZAR Remains Confined to Key Fibonacci Levels
From a technical standpoint, the weekly chart below highlights how the Fibonacci retracement levels[2] (From 30 Dec 2019 low to 6 April 2020 high), have formed support and resistance[3] levels for the pair, with price action[4] trading in an area of confluency between these levels.
Currently, price action appears to be confined by the 50% retracement level of this move at 16.64, holding both bulls and bears at bay.
Chart prepared by Tammy Da Costa[6], IG
Stochastic Nears Oversold Territory
From a short-term perspective, the four hour chart below now highlights the stochastic[7] nearing oversold territory after crossing the 80 mark from above. Should it fall below 20, this may be a possible indication that the trend may reverse towards the upside or that the downward trend may be losing momentum, at least in the short term.
