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ZAR: Rand Trims Losses, Implied Vols Unchanged Despite Coalition Uncertainty

ZAR
  • The rand continues to trim some of last week’s losses, outperforming its EM peers as the recent downtick in the USD index on the back of the softer-than-expected US data provides additional downside momentum to USDZAR.
  • The election returned a worse-than-expected result for the ruling ANC, forcing it into difficult coalition talks. While the ANC are attempting to build a stable governing coalition the prospect of a national unity government is yet to be ruled out. Nevertheless, USDZAR 1-month implied vols sit little changed on the session after initially increasing earlier this morning amid heightened uncertainty surrounding coalition outcomes.
  • From a technical standpoint, the rally in USDZAR last week confirmed reversal of the bear leg between Apr 19 - May 21. The pair is above resistance at the 50-day EMA, signaling scope for an extension higher toward 19.0659, a retracement level.
  • However, today's move lower has exposed support at 18.6058, the 20-day EMA, and 18.4798, the 50-day EMA. Clearance of this EMA support zone could instead highlight a possible short-term bearish reversal.

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