The USD/ZAR has rallied with eagerness after it fell to a significant demand area at 16.20. Now, the price has entered a short period of consolidation as traders anticipate this Friday’s speech by the US Federal Reserve Chair Jerome Powell. Also in the fundamental mix is South Africa's inflation rate rising to a 13-year high of 7.8% yesterday, only slightly above market expectations.
The technical chart on the USD/ZAR daily timeframe suggests that a strong supply zone is between 17.15 and 17.30. Breaking above this crucial area is needed to continue the rally. However, this may be increasingly unlikely as the daily candle wicks are now rejecting at 17.15.
The MFI indicator, which is a technical oscillator similar to RSI but uses price and volume in identifying the oversold and overbought conditions in an asset, shows that this crucial area was indeed a strong rejection zone, as highlighted in yellow. The MFI indicator is currently facing the mid-point of the indicator. Therefore, the USD/ZAR’s supply line at 17.15 may not be enough to suppress further upside.
Looking at the current price action, if the price fails to break above 17.15 and 17.30 and emphatically rejects these supply zones, look for the price to move to the downside and reencounter the 16.20 demand zone. It will be interesting to see how investor sentiment (and the associated demand zone) holds up in the face of an emphatic downside break.
A further break below that zone may induce a possible trend switch to the downside in a short-term period. However, we could also see consolidation between these supply and demand zones.