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Rand dollar news: USD/ZAR falls below 17.00 ahead of Fed decision day

Microsoft, Alphabet earnings ease sentiment prior to FOMC; USD/ZAR falls below 17.00 after failing to clear critical resistance and EM currencies remain vulnerable to stronger USD and higher prospects of a recession.

Source: Bloomberg

Risk assets ease ahead of FOMC

US stock indices S&P 500 (SPX), Nasdaq (US Tech 100) and the Dow Jones (Wall Street 30) are trading in the green after tech giants Microsoft and Alphabet released resilient earnings, easing sentiment before the FOMC rate decision later today (18:00 GMT).

With a 75-bps rate hike already priced in, the subsequent press conference will be monitored closely as Fed Chair Jerome Powell discusses the forward guidance for the trajectory ahead.

If the Fed is wiling to do ‘whatever it takes’ to combat inflation, an economic slowdown combined with higher interest rates (cost of credit) and elevated price pressures raises the prospects of a recession.

Source: DailyFX

USD/ZAR technical analysis

While robust data and an aggressive Fed has supported USD strength against most major counterparts, USD/ZAR has temporarily fallen back below 17.000 after bulls failed to gain traction above the September 2020 high of 17.264 earlier this month (14 July).

Although fundamental factors will likely remain the prominent driver of sentiment, the weekly chart below highlights the manner in which Fibonacci levels from historical moves (both the 2018 – 2020 & 2021 – 2022) continue to provide support and resistance for price action.

USD/ZAR weekly chart

Source: TradingView

With the weekly CCI (commodity channel index) still hovering around overbought territory, the daily CCI has fallen back into the ‘acceptable’ range while the pair is down around 0.54% for the day. If the 2020 range remains intact, a break below 16.70 may allow for a retest of the July low at 16.234 with the next layer of support holding at the 16.00 psychological level.

However, for bullish continuation to be probable, a break above 17.00 and 17.300 would be required, opening the door for the 76.4% Fib of the 2018 – 2020 move at 17.495. If this level is cleared, the uptrend may continue, with the next level of resistance holding at 17.687 (August 2020 high).

USD/ZAR daily chart

Source: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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