USD/ZAR forms inverse H&S as South African protests escalate
- The USD/ZAR formed an inverse head and shoulders on the daily chart.
- The pair is reacting to the ongoing protests in South Africa.
- Data also showed that the South African mining production eased in May.
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The South African rand (USD/ZAR) declined to the lowest level since April this year as protests on Zuma arrest escalated and after the relatively modest mining production data. The pair rose to 14.5685, which was 8% above the lowest level in June.
South African rand falls as protests escalate
The USD/ZAR declined as protests broke-out in several provinces in South Africa. The protests started after Jacob Zuma, the former president, went to prison to serve a 15-month sentence. The constitutional court imprisoned him for failing to attend an inquiry about the state capture probe.
The ongoing protests have led to damage worth millions of rand. At the same time, many companies in hotspot regions have been forced to close, fearing more looting. In response, the government has deployed police and the millitary to maintain law and order.
Analysts fear that these protests will continue as Zuma’s appeal continues. They also expect that the protests will go on if the court reaffirms the constitutional court’s decision. As a result, the situation will likely have an impact on the fragile South African economy that has an unemployment rate of more than 30%. The country’s jobless rate rises to more than 40% when you add people who have been discouraged of looking for work.
The USD/ZAR is also reacting to the latest mining production data in South Africa. Data from the mining ministry showed that mining production rose by 21.9% in May after rising by 117% in the previous month. This increase was worse than the median estimate of 32.8%. Gold production rose by 44.5% after rising by 178% in the previous month.
Recent South African data have been positive. For example, data published two weeks ago revealed that consumer inflation rose by 5.2% in May. This was a 30-month high and was above the 4.5% mid-point by the South Africa Reserve Bank (SARB).
USD/ZAR technical forecast
The daily chart shows that the USD/ZAR has been in a strong bullish trend recently. As a result, the pair has managed to move above the 25-day and 50-day moving averages (MA). It has also managed to move above the important resistance at 14.5085, which was the lowest level in December 2020. It has also formed an inverse head and shoulders pattern. Therefore, the South African rand weakness will likely continue in the near term.