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Euro South African Rand (EUR/ZAR) Rockets Higher as Eurozone Confidence Figures Impress

EUR/ZAR Surges on Back of Upbeat Eurozone Confidence Figures

The Euro South African Rand (EUR/ZAR) exchange rate initially pushed higher this morning as investors react to the latest Eurozone economic data.

At the time of writing EUR/ZAR has climbed 0.67%, although the pairing has relinquished some of its early gains following a bout of profit taking.

Euro (EUR) Bolstered as Confidence and Retail Data Impresses

The Euro jumped this morning following the publication of the Eurozone’s latest confidence data.

The single currency was first bolstered by the latest Consumer Confidence index which moved into positive territory for the first time since 2001 as it rose from 0 to 0.5 in December.

Meanwhile the Business Confidence figures also impressed as they revealed that businesses sentiment leapt from 1.49 to 1.66, beating expectations of a more modest rise to 1.5 and reaching a new record high.

The confidence data helps to underpin just how well the Eurozone economy has performed over the last year.

Further lifting EUR/ZAR this morning was the release of the Eurozone’s latest retail sales figures as sales growth rebounded sharply from -1.1% to 1.5% in November thanks to the increased activity in the run up to Christmas.

Eurostat notes that Portugal saw the strong rise in sales in November at 4%, suggesting that the country has mostly recovered from the debt crisis.

South African Rand (ZAR) Retreats as Currency Corrects Itself after Ramaphosa Rally

The South African Rand has fallen this morning as markets continue to reign in their bets as analysts form Rabobank and JPMorgan Chase & Co suggested the currency was overbought in recent weeks.

The Rand’s recent gains were largely driven by the euphoria following Cyril Ramaphosa’s election as leader of the ruling African National Congress late last month on hopes he will drive reform.

However observers suggest that the path to reform may be a little more difficult that some investors had initially thought.

Piotr Matys, an emerging markets foreign exchange strategist at Rabobank, said;

‘While Ramaphosa’s long-term economic plan would likely put South Africa on the path of sustainable and balanced growth, implementing it could prove far more difficult than initially assumed by investors.’

This has led some analysts to suggest that ZAR is overvalued and that there is likely some more room for correction.

In a note to clients JPMorgan analysts said;

‘In our short-term model based on credit default swaps and U.S. rates, the rand is about 6 percent too rich.’

EUR/ZAR Forecast: German Production Figures to Further Strengthen Euro?

Looking ahead the EUR/ZAR exchange rate is likely to continue to rally on Tuesday with the release of Germany’s latest production and trade figures, with economists forecasting that both will have improved in November.

The production figures are likely to be particularly impactful as Industrial output is expected to have rebounded from -1.4% to 1.9%.

On top of this the Eurozone will publish its latest employment stats tomorrow, with analysts predicting that the jobless rate will have continued its recent downtrend to reach 8.7%.

Meanwhile the South African Rand may be forced to relinquish even more ground on Tuesday as economists forecast that the countries latest PMI figures will reveal that factory activity slowed in December.