Rand anticipates positive Q3 GDP data from South Africa

USD / ZAR ANALYSIS

• Economic rebound expected by analysts
• Descending wedge triangle pattern persists

RAND WEAKENED AGAINST THE FIRMING DOLLAR

President Cyril Ramaphosa’s announcement to lock down certain areas (called “hot spots”) within South Africa has contributed to the short-term bullish bias. the Rand is still in the green against the American dollar for December, which coincides with historical price action during this period.

With the vaccine’s current positivity, the Rand may experience increased support through global risk sentiment that has been an overwhelming influencing factor amid COVID-19.

ARE PREDICTED GDP FIGURES FOR Q3 OF THE STATE ENOUGH TO GUARANTEE CONFIDENCE?

All eyes will be on South Africa’s third quarter GDP data tomorrow (09:30 GMT), which is estimated at 57.1% annualized (quarterly). This standout figure may seem extreme, but in light of the dismal second-quarter data, which projected the economy to contract by more than 50% due to the global COVID-19 pandemic, this rebound was predictable. Many analysts forecast actual figures above the 57.1% indicated, which could have a positive effect on the local currency.

The underlying and lingering economic woes may be overshadowed by outlandish GDP figures, but it is a question of “when” not if “the headwinds facing the South African economy are exposed within the currency.

Source: DailyFX Economic Calendar

USD / ZAR DAITABLE OF LY

Table prepared by Warren venketas, I G

Before last week Non-Farm Payroll (NFP) data, the Rand recovered much of its lost gains against the dollar. This was not enough to break below the falling wedge support line (black) or the November low at 15.0980. Short-term price action follows an uptrend with the bulls looking at the trend line of the upper resistance of the wedges. This triangle pattern remains significant in the medium-term outlook, which could lead to a major reversal to the upside.

the Relative Strength Index (RSI) still showing bullish momentum, however overall momentum is still bearish. USD / ZAR the bulls will be monitoring the potential for a breakout with targets at 15.5000 and 15.7357 respectively.

The bearish case may draw some support from the upcoming South African GDP figures, which could see a consequent move down towards 15.0980. Regardless of the directional move, the descending wedge will play a critical role in determining the medium-term outlook for the Rand, as a break above or below could set price action for 2021.

The US Dollar Index (DXY) has come out of oversold territory, which could indicate further strength in December. There are many fundamental conflicting factors at play, but which one will dominate as we close 2020?

USD / ZAR: KEY POINTS TO CONSIDER TO MOVE FORWARD

• Descending wedge triangle pattern
• Dollar strength
• GDP SA Q3

— Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @Venketas