After the bullish start of the year, the rand has started to weaken since the last Thursday. Let’s point out the main factors affecting the ZAR and set the key levels for this week’s trading.
US dollar: outlook for Aril 3-7
During the past week, the US dollar index (DXY) tested levels below 99.00 before recovering to 100.64.
The slump on Monday was provoked by the market’s concerns about President Trump’s inability to push the legislation through the Congress as he failed with his healthcare bill. In addition, there were reports that Trump was aiming to “penalize currency manipulators” (meaning the nations, which devalue their currencies against the USD) – a step to encourage a weaker dollar. However, then brighter spots appeared. The US Q4 GDP growth was revised up from 1.9% to 2.1%, while American yields increased. Hawkish comments from Boston Fed President Eric Rosengren and San Francisco Fed President John Williams, who talked about the possibility of 3 more rate hikes this year, gave some fuel to the dollar bulls.
On Friday, however, dovish comments from New York Fed President William Dudley (according to him, the Fed shouldn’t hurry with policy tightening and 1-2 rate hikes should be enough) and unimpressive consumer spending figures brought the greenback’s advance to a stop. This actually was a hit on the USD’s most important drivers.
Next week is going to be extremely intense for the US currency. America will release ISM manufacturing PMI on Monday, ADP non-farm employment change & ISM services PMI & FOMC March meeting minutes on Wednesday and a block of important labor market data that includes nonfarm payrolls (NFP) on Friday. The Fed's March meeting was less hawkish than the market has expected, so the minutes may contain further negative risks for the USD. NFP, as usually, will likely provoke a spike in volatility. Moreover, Trump will meet Chinese President Xi Jinping on April 6-7 (Thursday & Friday), so we’ll look forward for more details about America’s trade policy plan. This should be an important driver of the US currency.
DXY found support of the line from May 2016 and it looks like there will be a bullish engulfing on the weekly chart. At the same time, the greenback should meet resistance around 101.60 (resistance line from this year’s high). Support is located at 99.00 and 98.80 (200-day MA). All in all, the US dollar may spend more time consolidating within the wedge. The overall uptrend hasn’t been violated. The dollar’s move to the upside may resume in foreseeable future, but it’s clear that new drivers are needed for that.
If we look at the daily charts of the US dollar index and the USD/JPY pair, we will see a misleading trend.
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