The USD/ZAR has been caught in a flurry of bullish activity and a retest of highs seen in the second and third week of July is underway.

As of this writing the USD/ZAR is traversing around the 17.00000 mark with rather strong buying action demonstrating the capability of holding ground.  On the 16^th of August the USD/ZAR currency pair was near the 16.34000 level with what appeared rather tranquil conditions. However a burst of buying activity began the following day, this upon the publication of the U.S Fed Meeting Minutes which left a sour taste in the mouth of financial analysts and caused a storm to grow.

Lack of Clarity from U.S Federal Reserve Hitting Forex, Including the USD/ZAR

In the past couple of weeks of trading, the USD/ZAR had begun to reflect a potential return to bearish conditions. Highs achieved in the middle of July when the USD/ZAR was trading above the 17.00000 appeared to be in the rear view mirror. Selling flourishes were demonstrated, and on the 10^th through the 15^th of August lows of nearly 16.15000 came within sight a few times.

The deliverance of sudden buying in the USD/ZAR which began to strike with strength this past Thursday has been maintained.  From a technical perspective once the 16.65000 to 16.70000 ratios were proven vulnerable, resistance levels became challenged with rapid fire and the 17.00000 was broken through on Friday. Technical traders may be tempted to believe the USD/ZAR is too high, but they should note the forex pair did touch 17.25000 and higher from the 14^th until the 21^st of July a handful of times.

Storm Waters Churning and a Sudden Calm may be Difficult to Attain for the USD/ZAR

• The USD/ZAR is mirroring the results of other major currency pairs as the USD has developed strength the past few days.
• While it may be tempting to believe higher values in the USD/ZAR will fade, support near the 16.95000 to 16.90000 ratios should be watched. If these values hold, some traders may believe another wave of buying could develop in the near term.

Visions of a calm end to the month of August have been destroyed in Forex and the USD/ZAR will see more volatility too.  It is clear the U.S Fed will raise interest rates again in September, and now it appears some financial houses believe another wave of interest rate hikes will follow. Clarity is in short supply and while technical considerations may attract bearish speculators, being contrarian and selling the USD/ZAR in the near term could prove to be dangerous. Choppy conditions appear ready to remain intact this coming week

USD/ZAR Short Term Outlook:

Current Resistance: 17.04000

Current Support: 16.94000

High Target: 17.19000

Low Target: 16.82000

Ready to trade our Forex daily forecast? We’ve shortlisted the best Forex brokers in the industry for you.

 

Unless we see massive stimulus again, which given enough time we probably will, currencies like the ZAR will continue to suffer.

• The US dollar rallied again during the Friday session as it looks like the 16.88 level is now in the rearview mirror.
• The market looks very likely to continue going higher, but it’s also worth noting that we are a bit overbought at this point.
• A short-term pullback does make sense, but based on the trend that we have seen so far, it’s likely that we will see more of a “buy on the dip” type of attitude out there.

This makes quite a bit of sense, due to the fact that risk appetite has been decimated out there, so people will be much more interested in owning US dollars than emerging market currencies. That being said, it was a mixed bag when it comes to EM currencies, but clearly, the South African rand is on its back foot. That being said, a pullback at this point more likely than not will face a significant amount of support at the 16.50 level, an area that is a round figure that a lot of people pay close attention to.

Is it Time to Short the Rand?

Looking at this move, you can see that we had broken above a significant resistance barrier in that area, and now it looks like we are ready to go much higher given enough time. That being said, I don’t like the idea of shorting this market, even if you told me that it was going to start falling tomorrow. It’s not until we break down below the 15.75 level that I would consider shorting this market, and even then I would have to see what was going on in the bond market in the United States, which of course is a major driver as to where the US dollar is going.

South Africa continues to be a place that people won’t want to throw money at right now, as commodities are taking a nosedive. Remember, the South African economy is highly sensitive to hard assets as it is a major commodity producer. If there is in fact going to be a global slowdown, it makes quite a bit of sense that commodity currencies, commodities, and commodity-related economies all suffer. I think that continues to be the case going forward as we head into recession, and unless we see massive stimulus again, which given enough time we probably will, currencies like the ZAR will continue to suffer.

I do believe that not only does the currency market continue to reflect the softness of emerging markets, but you will probably see much of the same in their equity markets as well.

The US dollar broke through significant resistance near the 16.40 level. Ultimately, this is a market that continues to see a lot of upward pressure, as we have seen a lot of negativity in emerging markets. Now that we have broken out above there, it’s likely that we go looking to the 16.60 level. After that, the 17 level will be targeted.

The South African rand is getting absolutely slammed as a lot of risk appetite has been destroyed. Keep in mind that the South African rand is highly levered to the commodity markets, so that is worth keeping in the back of your mind as well. The South African rand focuses a lot on the development of Africa and hard assets such as gold and diamonds. As long as there is a strengthening US dollar out there, it will have a major negative correlation to what the South African rand can do. Short-term pullbacks are possible, but I think those will more likely than not be buying opportunities for the longer term.

The size of the candlestick is rather bullish, and I think that only adds more fuel to the fire for buyers. In fact, the 50-day EMA at the 15.80 level is also supported, so I think there’s no real reason to suspect that we are going to change attitudes anytime soon. As long as we stay above the 50-day EMA, the market is likely to find plenty of people that are willing to come in and pick up “cheap US dollars.”

The Federal Reserve continues to tighten quite drastically, and that will continue to put a lot of pressure on other currencies around the world, as we continue to see a lot of strength in the greenback which causes major problems in emerging markets, as most of the debt that these countries have is priced in USD. Because of this, I do believe that not only does the currency market continue to reflect the softness of emerging markets, but you will probably see much of the same in their equity markets as well. Because of this, I continue to buy dips and take advantage of the longer-term trend. If we were to break down below the 50-day EMA, the market will probably “reset” near the 15.20 area.

I think that it is only a matter of time before buyers get involved in each dip going forward.

The US dollar went back and forth on Monday as we continue to threaten a major breakout against the South African rand. At this point, if the market were to break above the 16.40 rand level, then it would blow through a lot of resistance and it more than likely go looking to reach the 16.50 rand level.

At this point, the market continues to see a lot of noisy behavior, as indicated by the neutral candlestick for the session on Monday. The 16 rand level underneath should offer plenty of support, as it was previous resistance. The question now is not so much whether or not the South African rand is weak, but whether or not the US dollar needs to pull back. We are starting to see a little bit of an overbought condition with the greenback around the world, so would not be a huge surprise to see it play out here as well. Furthermore, when you look at the way the market has been trading of the last couple of weeks, it has become much choppier. After all, the volatility will scare some people, so if you were long of this market already, you may be willing to take profits rather quickly.

The 50-day EMA sits at the 15.41 rand level and is rising. That should offer quite a bit of support from a dynamic standpoint, so as long as we stay above there, I am still looking to the upside. Furthermore, there are a lot of concerns globally out there so it should continue to be an environment where the greenback is favored over most currencies, especially when it comes down to emerging market currencies such as the rand.

Keep in mind that the South African economy is heavily influenced by commodities, and that also bodes well for shorting the rand over the longer term, as a global slowdown will demand a lot less in hard commodities, something that will disproportionally affect the South African economy. Ultimately, this is a market that I think will continue to see volatile and choppy trading, but I do think that it is only a matter of time before buyers get involved in each dip going forward. We could just simply slice through that resistance barrier and continue going higher.

There are a lot of “buy on the dip” buyers out there waiting to jump all over any type of value that they see in the US dollar,

The US dollar initially pulled back against the South African Rand during the trading session on Friday but found support near the 15.75 Rand level to turn things around. At that point, the market broke above the 16 Rand level, and even threatened the 16.20 level before it was all said and done. Keep in mind that the South African Rand is most certainly a “risk-on” type of currency, and in the environment that we have been in for quite some time, it does make a certain amount of sense that people may run away from it.

Furthermore, commodities continue to be threatened, and the South African economy is highly levered to hard assets such as gold and other minerals. If we can break above the 16.25 level, then it is likely that we could continue to see a lot of momentum come into the picture, perhaps opening up a move to the 16.50 level. Pullbacks at this point should see plenty of buyers, and the realm of value hunting. Even if we break it down below there, it is likely that the market could go looking to the 15.50 Rand level, where the 50 Day EMA is currently reaching. The 50 Day EMA broke above the 200 Day EMA recently, forming the so-called “golden cross.” This is a market that continues to see a lot of noisy behavior, but that is nothing new for this pair.

I believe there are a lot of “buy on the dip” buyers out there waiting to jump all over any type of value that they see in the US dollar, and as long as there is a general shunning of risk appetite, most specifically emerging markets, South Africa will not be a place that people are willing to throw a lot of money at. In fact, it is not until we break down below the 200 Day EMA that I would be short of this pair. The 15 Rand level sits just below there, which has a lot of psychology attached to it as it is a large, round, psychologically significant figure. All things being equal, you can see where buyers have stepped in every time there has been a bit of a pullback as value hunters are willing to take advantage of greenbacks every time they get “cheap.”

The question now is more or less whether or not the 14.50 Rand level is going to offer a bigger “floor in the market?

The US dollar has had an explosive trading session on Tuesday to break above the 50 Day EMA. At this point, the market looks as if it is trying to reach the 15 Rand level, which is a large, round, psychologically significant figure. The market breaking above the 50 Day EMA is a good sign, but now we have to keep in mind not only the large, round, psychologically significant figure but also the 200 Day EMA that sits just above there.

The market breaking above the 200 Day EMA would be a very bullish sign, and at this point in time is likely that we would continue to go much higher. The 15.50 level would be the next target, as it has offered resistance previously. At this point, I think the market is going to try to go higher, especially if we continue to see a lot of concern around the world. After all, that does tend to have money flowing into the US dollar more than anything else, as emerging market currencies are shunned.

The South African Rand is also highly levered to commodities, which got absolutely crushed during the trading session on Tuesday. The 15 Rand level could offer a significant amount of resistance, and now that we are between the 50 Day EMA and the 200 Day EMA, which is typically an area that causes a bit of volatility when you enter in. After that, you see a certain amount of impulsivity come into the market under most circumstances, and that is something that I will be following. The question now is more or less whether or not the 14.50 Rand level is going to offer a bigger “floor in the market?

If we were to break down below the 14.40 Rand level, the market is more likely than not to continue to go lower, perhaps reaching the 14 Rand level. The longer-term trend has been negative for a while, as both moving averages have been dropping, and of course the 50 Day EMA has broken below the 200 Day EMA, causing a certain amount of negativity due to the fact that it is the well-known “death cross signal” that a lot of longer-term traders will pay close attention to. This pair is highly sensitive to risk appetite, so always keep that in mind as well.