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Societe Generale is bullish on the rand. And you?

Societe Generale is bullish on the rand. And you?

Updated

What happened?

Societe Generale, a leading European investment bank, expressed optimism over the South African rand’s growth. Why? Firstly, the bank believes the ongoing global recovery will underpin the emerging market currency in the upcoming months. Secondly, the rand is usually influenced by credit rating downgrades. And since Societe Generale doesn’t expect any further downgrades for South Africa, the rand is safe from this risk. Finally, 2021 should bring many benefits for South Africa such as improving relations with China and greater inclusion in global trade.

"We are inclined to reload on tactically bullish ZAR positions as global markets move closer to finding a new Developing Markets rates equilibrium environment," says Societe Generale.

What does it mean for traders?

The South African rand is going to rise over the coming months. After the deep slump at the start of the coronavirus pandemic, the rand (as well as other emerging market currencies) has managed to recover in the second part of 2020 and keeps rising this year as investors foresee a strong economic recovery in 2021.

Technical analysis

USD/ZAR has been moving sideways between 15.50 and 14.45. Now it has approached both the middle line of Bollinger Bands and the 50-day moving average of 14.90. Thus the pullback down is likely to occur. On the way down the pair may meet the support levels at the low of March 17 at 14.60 and the February low of 14.45. In the opposite scenario, if it breaks the strong resistance of 14.90, the way up to the high of February 26 at 15.10 will be open.

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