Rand Subject to US CPI

RAND TALKING POINTS & ANALYSIS

• Improving South African production helps buoy rand.
• Can US CPI influence Fed narrative?
• USD/ZAR rising wedge still in play.

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USD/ZAR FUNDAMENTAL BACKDROP

The South African rand kicked off the European session on the front foot on the back of a weaker USD as well as some positive South African specific economic data (see calendar below). Gold, mining and manufacturing production all surprised to the upside YoY for October while markets prepare themselves for the upcoming US CPI report. US inflation has been steadily declining albeit at a slower rate than many Fed officials hoped for but with other economic data showing a declining US economy, markets have ‘dovishly’ repriced expectations. This makes today’s CPI critical for short-term guidance especially after last week’s Non-Farm Payroll (NFP) beat. I expect Fed Chair Jerome Powell to pushback against rate cuts tomorrow to allow for more incoming data.

Stronger base and precious metals prices have also contributed to ZAR upside from a commodity export point of view.

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

Source: DailyFX Economic Calendar

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TECHNICAL ANALYSIS

USD/ZAR DAILY CHART

Chart prepared by Warren Venketas, TradingView

The daily USD/ZAR chart continues to develop within the rising wedge chart pattern (dashed black lines) as the pair trades in and around the 19.0000 psychological handle. Traditionally a known as a bearish continuation formation but is highly dependent on US CPI, SA CPI and the Fed. The pattern will be negated should we see a confirmation close above wedge resistance while rand strength could be catalyzed by a US CPI miss thus possibly opening up the 18.5000 support level.

Resistance levels:

• 19.3000
• 19.0000
• Wedge resistance

Support levels:

• 18.7759/50-day MA (yellow)/Wedge support
• 200-day MA (blue)
• 18.5000

Contact and followWarrenon Twitter:@WVenketas