OVERVIEW

Markets Await US Non-Farm Payroll Figures, Expectations Are for Payrolls To Accelerate.
Omicron May Have Impacted Unemployment And Job Data Will Have To Highly Outperform To Boost Dollar.

Price action of the USDZAR is influenced by interest rates, economic data, politics and/or volatility caused by technical reactions or investor sentiment. This week the pair was guided largely by volatility until the release of the US Fed meeting minutes which pointed to a forthcoming rate hike. The hawkish (aggressive) talk in the minutes of the last Fed meeting gave the dollar support this week.

Risk appetite improved from Wednesday as Non-Farm Payroll data anxiety settled in and a wider trade deficit was shown in Nov US data which may imply a dampening on 4th quarter economic figures.
Despite the EM rally, the dollar remains posed to dominate and feed off of the Fed’s hawkish talks leading up to March’s probable rate hike.

What to expect:
Job data later today will set the tone for the dollar going into next week, figures are expected to be strong but will have to exceed 600K if it is really to have an impact on the dollar. Strong numbers will however give fire to the Fed to stay on course with their aggressive policy and therefore solidify the odds of a rate hike – which would play in the dollar favour long-term.

Technically:
USDZAR maintains its range between R16.00/$ and R15.45/$, which is in line with our channel on the below graph.
Moving into the later days of the month we may see a fluctuation around R15.60/$ if the emerging market strength is unaffected by US job data.
A strong dollar rally will push the pair over the R16.00/$ mark.

Despite German inflation slowing, the euro took a backseat to the dominant dollar this week.
On Tuesday this week, the ECB officials made clear that if inflation takes a turn for the worst then the officials will be ready to act and further withdrawal of monetary stimulus is in the pipeline if needed.
The next forecast on inflation and growth is due in March, until then the ECB will take it “step by step” as cited by Governing Council member Martins Kazaks.
 
Additionally, the European Central bank is not expected to make any significant changes to monetary policy in the short-term and with the dollar being more vocal with markets on rate hikes this will leave the euro in the background of the majors and possibly losing ground.

Technically:
EURZAR fell solidly within our range for this week, ranging between R17.73/€ and R18.15/€ as forecasted.
We expect the EURZAR pair to continue to gradually make lower highs until we see volatility from central bank decisions shift price action. EURZAR is poised to test R17.65/€ and breaking this would see a R17.50/€ on the table. Importers should however not be shy to take advantage of current levels.

The pound had a strong past few days, peaking mid-week at R21.75/£. Pound positive investor sentiment aligned with the belief that no further restrictions will be imposed boosted the UK currency. Furthermore, British factory activity improved more than expected which also backed the pound around its mid-week high.
 
However, data yesterday showed that the services industry incurred losses as hospitality and travel was impacted by cancellations of travel from tourists. As a result, economists expect a drop in GDP for Dec/Jan in the UK.

Technically:
The GBPZAR broke highs as it strongly competed against the greenback this week. Dropping to R21.30/£ puts R21.00/£ in reach, however the pound movement will be dependent on the US job data later and may follow suit to the greenback’s reaction. So expect volatility with a ranging around R21.40/£ into next week.

Technical levels we are watching for the upcoming week: