Is it a good time to buy EUR from South African Rand?

EURZAR Forecast highlights:

• EURZAR surged to new highs before retracing back to support (20.0)
• Macro trends appear to favour the EUR
• Watch to buy some EURs at around 20.0

How has EURZAR performed recently?

In stark contrast to USD-ZAR, the South African Rand-Euro fx rate hit new all-time highs (or lows if viewed from ZAR’s perspective) this year.

Prices briefly traded at 22.00 before falling back to near 20.0. Despite this pullback, the rate remains above the long-term trendline and more importantly, prices are staying north of the round number level at 20.0 (see below). This keeps alive the possibility of another spurt into 21.0-22.0

The extension of the secular uptrend (ZAR in persistent weakness) was initiated by a massive, and sudden, rotation into the Euro. The currency of 20 nations benefitted from the ongoing diversification out of the USD. Many Euro-related pairs saw large counter-trend rallies.

As such, EUR-ZAR broke above the previous high at 21.0.

What’s the next phase here? As long as investors keep shifting into the Euro, this rate will stay near the upper side of the trading range.

Is it a good time to buy EUR?

While EUR-ZAR rallied higher in favour of the Euro, prices have regressed somewhat in recent weeks. These days, it is trading within the band at 20.0-21.0.

For those travellers in need of the Euro in the near term, this pullback could be a good area to buy some.

Yes I know many are still hoping for a rate below 20.0, but this retracement is by no means guaranteed to happen as there are many Euro buyers out there.

The better option is to buy some EURs now and wait to see if prices will come down.

Will the Euro get stronger?

New geopolitical realignment is being forced upon continental Europe. The bloc is forced to concur with new – evolving – realities, from Trump tariffs, to NATO spending, to falling inflation to the Ukraine conflict. Beyond these cyclical items to watch for, we also have secular themes overlapping the macro analysis. Themes like a gradual diversification out of the USD.

In today’s Financial Times, for example, a headline (paywall) screams: “Fears over US debt load and inflation ignite exodus from long-term bonds.” This sort of investment trends potentially favours the Euro, since those capital that sold US bonds have to go somewhere.

Moreover, the European stock market is breaking out of its long-term consolidation.

As seen below (MSCI Europe), the index is about to take out the previous secular highs attained in 2007. If sustained, this is a massive breakout and will lead to more buying of European assets.

These macro factors are influencing the value of the Euro to the upside. Of course, investment trends can shift quickly. Generally, capital prefers safety. In this regard, the Euro is a reasonable choice for the moment.

What is the EURZAR forecast in weeks

For any single FX rate, there is normally a wide range of forecasts. Some are bullish; some bearish. From these dispersion of prices, we take the middle rate.

For EURZAR, however, the market appears to be uniformly bullish. That is, most analysts are expecting ZAR to depreciate against the EUR.

The forecast rates keep going up until 22.5 – a new high – before falling back somewhat (see right).

But are these forecasts overly positive on EUR? Difficult to say, since the market is now uniformly bullish on EUR. In financial markets, a feedback loop often happens.

Source:exchangerates.org.uk