EUR/ZAR Forecast: Bounces on German Yields but 5- Day EMA Caps Upside

During the early part of trading on Friday, we have seen the euro rally a bit against the South African rand.

EUR/ZAR

During the early part of the trading session on Friday, we have seen the euro rally against the South African rand, forming a potential double bottom near the 18.60 level. That being said, this is also accompanied by rising German yields, the 10-year yield in Germany approaching the 3.20% level, showing signs of higher rates and perhaps more attractiveness for holding euros.

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That being said, this is still a very negative market, and it still has a negative carry. So at this point in time, I'm looking for signs of exhaustion to get involved again. We could rally a bit though, with the 50-day EMA at the 18.87 level being in an area that might cause some issues. And then the 19 area above there could be important as well. Anything above 19, then the whole situation starts to change.

Negative Carry and Selling Rallies

As things stand right now though, you need to recognize that we are fairly close to a major swing low that occurred at the very end of 2024. Breaking down below that means that the bottom falls out, and we could go looking to 16.50 before it's all said and done. You'd get paid to hold that pair all the way down there, but it would take quite a bit of time, I suspect.

Rallies at this point in time, again, I think are selling opportunities unless, of course, we can jump above that crucial 19 level. Above there, then we could be sniffing out a trend change. This is a pair that will remain choppy and volatile, and of course you have to keep an eye on the overall risk appetite out there. But it does seem to favor the South African rand just from an interest rate differential as the carry trade remains positive, not only for shorting this EUR/ZAR pair, but for the overall market right now. All of the carry trade pairs that I follow closely are doing fairly well.

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