Fxequity

Friday’s Omicron Overshoot Sees Rand Open Greater


RAND ANALYSIS

  • Rand market frenzy fades as market mulls over new variant.
  • Commodities revised decrease as uncertainty emerges.
  • Bearish harami suggests short-term USD/ZAR draw back correction.

ZAR FUNDAMENTAL BACKDROP

RAND IS NOW ONE OF THE WORST PERFORMING CURRENCIES AGAINST THE GRENBACK

The South African rand might have been the worst affected Emerging Market (EM) currency on account of the brand new COVID-19 pressure often known as Omicron. Inaccurate information concerning the virus sourcing from South Africa has led to the numerous selloff final week. Though the selloff was systemic, with solely a handful of safe-haven assets (gold, JPY, CHF and U.S. Treasuries) seeing any upside in any respect, the ZAR took the brunt of the transfer. Draw back was compounded by the journey bans imposed by many overseas nations which appeared to have a domino-like impact as soon as initiated. The rand as soon as stood as the perfect performing forex in opposition to the U.S. dollar earlier this yr however now sits across the backside of the pile virtually 10% down for the yr (see graphic under):

CURRENCIES VS U.S. DOLLAR YTD:

ZAR vs Dollar comparison including other currencies

Supply: Reuters

Final evening, South Africa’s President Cyril Ramaphosa addressed the nation outlining the brand new variant and its potential ramifications ought to residents not take obligatory precautions. He went on to specific his displeasure in the direction of nations which have executed the aforementioned journey bans which went in opposition to prior G20 discussions (in response to the president). Journey will severely curtail the already struggling tourism sector and will take a toll on the rand ought to it stay till yr finish.

Commodities proceed to really feel the pinch this week as demand forecasts are negatively impacted (significantly oil), however rand linked commodities have been buoyed considerably by the latest uptick in iron ore.

SOUTH AFRICA 10-YEAR GOVERNMENT BOND YIELD:

SA 10 year gov bond yield

Supply: Refinitiv

South African 10-year authorities bond yields hit contemporary yearly highs final week reflecting the numerous bond selloff and danger aversion. Though markets have marginally rebounded at present, the brief/medium-term stays unsure as markets await extra information on the brand new pressure.

UPCOMING ECONOMIC DATA THIS WEEK

The week forward is riddled with excessive affect U.S. targeted occasions that would improve the Fed’s more and more hawkish slant. Firming financial progress on account of PMI and NFP beats will play into the palms of hawks and will exacerbate the present ZAR stoop.

US economic calendar

Supply: DailyFX economic calendar

From the South African perspective, the occasions listed under with explicit deal with unemployment tomorrow could possibly be potential market movers.

SA econ calendar

Supply: DailyFX economic calendar

TECHNICAL ANALYSIS

USD/ZAR DAILY CHART

USD/ZAR daily chart

Chart ready by Warren Venketas, IG

The 38.2% Fibonacci at 16.3547 proved to be a key stage of resistance with revenue taking seen round this space of confluence, final seen in the course of the October/November 2020 interval. The bearish harami candlestick sample (yellow) gave some inclination for todays transfer decrease and will proceed (information dependent) decrease to 16.0000 psychological level the place many might look to re-enter lengthy.

The Relative Strength Index (RSI) is at the moment overbought, commensurate with the above price action however firmly favors an upside bias.

Resistance ranges:

  • 16.5000
  • 16.3547 – 38.2% Fibonacci stage

Help ranges:

  • 16.0000
  • 20-day EMA (purple)/channel resistance
  • 15.4289 – 50% Fibonacci stage

Contact and observe Warren on Twitter: @WVenketas





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