Blue wedge, topside or downside break? Our beloved rand seems to be on the ropes again after a stronger than expected US CPI print. The stronger than expected US CPI is cooling last year’s aggressive rate cut expectations which is dollar positive and drives risk-off sentiment, which is rand negative.
Zooming out, the USD/ZAR pair has been in a wedge pattern since the rand made its 2Q2023 recovery which saw the rand pull the pair to a low of 17.41 before the rand folded back to 19.64 in 4Q2023. The blue support range between 18.31 and 18.40 has capped the rand’s gains since the backend of 2023 and the pair failed to break below the 50-day and 200-day MAs to re-test this support range in January 2024.
To the topside we have the red resistance range of 19.15 and 19.30. The pair is expected to re-test this range following this afternoon’s price action, if it breaks above the black downward trendline.
The critical rates to watch is the January 2024 high at 19.22 and the 61.8% Fibo rate of 18.97. A break above 19.22 will be an early signal for a possible topside break out of the blue wedge which will see the rand slide back above 19.65. Conversely, a move below 18.97 will allow the rand to re-test the 50-day and 200-day MAs which coincides with the bottom of the blue range.
A downside break will allow the rand to recover to a best-case scenario of 18.00.
Factors motivating a topside break: Expected rate cuts from the Fed in March don’t materialize and commodity prices, particularly platinum, remain subdued. For now, I’m on the fence since these macro-economic factors can flip in an instant.
Technically, not much can be made of from the RSI which still has room to move higher while the failed break below the 50-day and 200-day MAs is rand negative.
Topside or downside break out of the blue wedge, please leave your comment below!
