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

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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.