Rand Bulls Force Bear Flag Breakout

RAND ANALYSIS & TALKING POINTS

• Chinese new Yuan loans drive ZAR confidence.
• All eyes shift to US CPI tomorrow.
• Bear flag break eyes R18.50/$.

USD/ZAR FUNDAMENTAL BACKDROP

The South African rand extends its gains against the U.S. dollar this Tuesday as markets anticipate lesser inflationary pressures within the US via tomorrow’s US CPI report. Consumer inflation expectations dropped to fresh lows last seen in April 2021 leaving the greenback exposed to the downside. Encouraging Chinese loan data (see economic calendar below) supplemented ZAR strength this morning as this marks an unusually positive data release of recent. With the USD on the backfoot and slight optimism around China, commodity prices have rallied adding yet another layer to the rand upside dynamic.

South African manufacturing production showed mixed results as YoY figures beat estimates; however the MoM measurement showed a marked decline in May. The largest contributions were made by the following sectors as per the Stats SA report:

• motor vehicles, parts and accessories and other transport equipment(15,1% and contributing 1,4 percentage points); and
• basic iron and steel, non-ferrous metal products, metal products and machinery(5,8% and contributing 1,2 percentage points).

The US inflation talk will likely be the focal point for the USD/ZAR pair ahead of tomorrow’s release and with markets disregarding the hawkish bias favored by Fed officials, the Fed’s Bullard may not be enough to deter market assessment later today.

USD/ZAR ECONOMIC CALENDAR (GMT +02:00)

Source: DailyFX Economic Calendar

TECHNICAL ANALYSIS

USD/ZAR DAILY CHART

Chart prepared by Warren Venketas, IG

Daily USD/ZAR price action above reflects a breakout from the bear flag chart pattern (dashed black lines) while pushing below the 50-day moving average (yellow). This places the pair in favor of a short-term downside bias exposing the 18.5000 psychological support handle. Dipping under the 50 level on the Relative Strength Index (RSI) supplements this bearish perspective and a daily confirmation candle close below flag support/18.7169 could drive this expectation.

Resistance levels:

• 19.0000
• 50-day moving average (yellow)
• Flag support
• 18.7167

Support levels:

• 18.5000
• Trendline support
• 18.2500

Contact and followWarrenon Twitter:@WVenketas