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EUR/ZAR Retests Key Support Break at 17.00, Policy Divergence Emerges

  • EUR/ZAR made a key support break at 17.00 yesterday as regional contagion risks over the Ukraine crisis hit the euro, with markets trimming ECB hiking estimates, despite surging energy prices. Markets now price roughly 2.4 10bp hikes by year-end vs approximately 5 around the hawkish Feb rate decision.
  • EUR/ZAR has fallen -2.16% since the start of March following massive sanctions on Russia extending across the breadth of its economy. While risk-off has hurt the euro, the ensuing spike in commodity prices has benefitted ZAR, with the monetary policy divergence on energy prices adding further support.
  • The SARB is likely to continue delivering hikes at its pre-determined pace of 25bp clips, but may been to prolong its hiking cycle into 2023 to account for the longer-term effects of the energy crisis – similar to most EM’s. This makes for a reasonable policy divergence play in EUR crosses vs EM.
  • Should price action hold below 17.00 support turned resistance, then we may see the prior lows at 16.6488 (10 Sep ’21) tested, and a more protracted period of EUR weakness and commodity upside could see the move extend to 16.3106 (07 June ’21)

MNI London Bureau | +44 020-3983-7894 |
MNI London Bureau | +44 020-3983-7894 |

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