The USDZAR reversed and fell off the 14.60 resistance zone as we said in our previous analysis (Daily chart). However, recently it formed a bottom at 13.45, just ahead of the all-important Fed meeting on December 13 – 14.
It is widely expected that the Fed will raise interest rates on Wednesday by 25 bp, raising the target range to 0.75%. However, this hike in interest rates alone will probably not be enough to lift the dollar or the USDZAR currency pair because the markets have fully priced in this rate hike from the Fed.
With that said, what will be more important for the value of the US Dollar following the Fed announcement is their statement and indications on the future course of interest rates in the US.
Currently, markets expect 2 more rate hikes from the Fed in 2017, anything more than this on the dot plot will be positive for the US Dollar and bullish for USDZAR. If on the other hand, the dot plot stays the same, with the 2 rate hikes projected for 2017 then the USD will most likely fall on disappointment.
Inflation reports from South African binary options brokers this week came slightly lower with the CPI month over month report printing 0.1% vs 0.2% expected. Retail sales were much weaker than expected at -0.2% vs 0.8% expected. This is good news for the SARB because it could mean that inflation is finally easing.
If inflation really does slow down in South Africa than that will be bullish for the USDZAR because the SARB will finally be able to lower interest rates.
To get a better idea where USDZAR will be headed, we can monitor what happens short term and how price action behaves inside of the channel shown on the 4h chart. A bullish breakout here on the 4h chart will increase the probabilities of a bullish breakout of the channel on the daily chart as well.
A bearish breakout on the 4h chart will likely mean that USDZAR will go to the lows at 13.15 and maybe even lower.
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