• The USD/ZAR has gone back and forth during the trading session on Wednesday as it looks like we are running out of momentum.
• The US dollar has been straight up in the air for some time, and now we have stalled at the 17 Rand level.
• The 17 Rand level has been important previously, so it’s not a huge surprise to see that we have stalled here.

Furthermore, it looks like the markets are paying close attention to the Jackson Hole Symposium, meaning that the US dollar might be a bit slow over the next 24 hours as traders are trying to figure out whether or not Jerome Powell is going to remain hawkish. Keep in mind that this pair will rise in a “risk off” type of environment, but at this point, it’s likely that we would need to see Jerome Powell sound extraordinarily hawkish. He very well could, and that could send this market to fresh, new highs, as the US dollar will be like a wrecking ball against most currencies, especially emerging-market ones.

Rand Could Be Hindered By Interest Rates

On a pullback from here, I think there is plenty of support underneath, and therefore it’s probably only a matter of time before we see this market turned back around. This  is a market that I think will see support at the 16.50 Rand level, not only due to the fact that there’s a certain amount of psychology attached to the “midcentury mark”, but also the 50 Day EMA. After that, then the 16 Rand level will offer support based upon the large, round, psychologically significant figure and the 200 Day EMA.

It’s very likely that higher interest rates will continue to punish emerging-market currencies and economies around the world, so I look at any pullback as a potential buying opportunity. The 200-Day EMA would have to be broken below, and of course; we would have to see general US dollar weakness in order to see an opportunity to start shorting against the Rand. Keep in mind that the South African Rand is also highly levered to the commodities markets, so pay close attention to them as well. This could lead to a bit of a “death spiral” against the South African Rand because higher interest rates going forward will slow down economic demand for those commodities.

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I still believe that we will see the 17 ZAR level tested.

The US dollar has pulled back a bit during the trading session on Thursday as we have seen an oversold condition in this pair. That being said, the market has seen the 16.80 level offer significant resistance, but quite frankly I think it probably had more to do with the idea of the market being overdone. At this point, pulling back to the 16.40 level makes quite a bit of sense, and of course, it also makes a certain amount of sense that we have seen this market pullback as we are going to have to deal with the jobs number coming out on Friday.

That being said, the longer-term attitude should remain, due to the fact that the interest rates in America are rising, and quite frankly there are a lot of concerns out there when it comes to the global growth situation. The market will continue to see a lot of volatility, as it is an emerging market currency, and of course there are a lot of concerns when it comes to not only global growth, but recessionary concerns, monetary tightening, and much more.

Furthermore, Africa’s not exactly the first place money goes flowing to when you think of the possibility of economic expansion when there are a lot of concerns. In other words, there has to be a huge “risk on attitude” around the world. The 16.40 level is an area that previously had been resistive, so therefore I think it makes quite a bit of sense that we would see that area offers support based upon “market memory.” Breaking down below there then opens up the possibility of a move down to the 16.20 level. Ultimately, I think this is a situation where we are looking to buy the dip and may have to do so after the jobs number, but ultimately this is a market that has much further to go. I still believe that we will see the 17 ZAR level tested, and perhaps even broken above if we continue to see such an ugly outlook for the global economy. Furthermore, it’s worth noting that the South African economy is highly levered to hard commodities such as diamonds, gold, etc. Because of this, we need to see metals take off to the upside to help as well.

I have no interest in shorting, at least not yet.

The US dollar initially pulled back during the trading session on Thursday but found enough buyers underneath to send it above the 16 Rand level. This is an area that previously had been trouble, so be interesting to see if we can keep up this type of momentum. We are overbought, but that does not matter when the bond markets are freaking out. Furthermore, a lot of people are shunning the idea of emerging market currencies or dad, so that will continue to have major ramifications when it comes to the USD/ZAR pair.

Underneath, I see a significant amount of potential support at the 15.60 Rand level, so a pullback would more than likely find buyers in that area. Nonetheless, it should be noted that we started to accelerate to the upside again during the end of the session in New York, suggesting that perhaps we are going to see a run much higher. If that is the case, then I think that we are going to see an explosive move sooner rather than later. The question now is whether or not people will want to hold South African Rand into the weekend on any type of bigger move? I suspect that if we do get a pullback on Friday, it will be nothing more than a bit of profit-taking.

Underneath, you can see that the 50 Day EMA is sitting just above the 15 Rand level and is curling higher. It is about to cross above the 200 Day EMA, which is a bullish sign and kicks off what is known as the “golden cross.” While I am not necessarily a huge fan of this technical indicator, I recognize that a lot of longer-term traders pay a certain amount of attention to it. Because of this, you have the potential longer-term institutional “buy-and-hold money” coming back into the market as well. The US dollar seems to be about the only game in town, so for a currency like the South African Rand to struggle, there is not a lot of imagination needed to see this happening. Furthermore, if commodities continued to get sold off a bit, that will also work against the South African Rand as it is so highly correlated to hard assets such as gold and other minerals. I have no interest in shorting, at least not yet.

In the short term, it certainly looks as if we are going to get a little bit of a recovery, the question of course is whether or not it can sustain itself.

The US dollar has been all over the place during the trading session on Thursday, as we initially fell, but then turned around to show signs of strength. We have broken out of a short-term consolidation area during the trading session, and therefore it looks as if we are trying to recover. The 14.50 Rand level is an area that has been important more than once, so is not a huge surprise to see a bit of a bounce here.

The question now is whether or not this candlestick? After all, South Africa has seen a massive decline in coronavirus numbers, so it does suggest that perhaps the economy will wake back up. The interest rate differential comes into the picture as well, and it is worth noting that the US dollar has seen interest rates in the 10-year note rise rather rapidly, so perhaps that is starting to have a bit of an influence on this market as well. Nonetheless, the obvious thing is that the 14.50 Rand level now looks as if it is significant support.

The 50 Day EMA above is breaking through the 15 Rand level, and therefore I think that if we can go to the upside and test the 50 Day EMA, it will be an interesting resistance barrier. Breaking above that could then have buyers coming back in for a bigger move. This is a market that has been very negative for a while, and therefore it would take quite a bit of momentum to make that happen.

Keep in mind that the South African Rand is essentially a commodity currency, so you need to pay attention to the commodity markets. Commodity markets are starting to turn around a bit, selling off in several different areas. If that keeps up, it could work against the value of the Rand going forward, especially if it is more of a “risk-off” type of situation, as the US dollar is considered to be safe in the currency markets. In the short term, it certainly looks as if we are going to get a little bit of a recovery, the question of course is whether or not it can sustain itself.

On the downside, if we were to break down below the lows of last week, it opens up the possibility of a move down to the 14 Rand level. However, the Thursday candlestick does suggest that it may not happen in the short term.

In a world that offers very little in the way of interest, it does make sense that people will continue to favor some of the higher-flying currencies such as the South African Rand.

The US dollar has fallen to kick off the trading session on Friday, testing the 14.50 Rand level. This is an area that has been important multiple times, and therefore it is likely that the market will continue to see buyers in this general vicinity. That being said, the market looks as if we are trying to bounce from here, perhaps in a short-term recovery of the overall downtrend.

It should be noted that we just formed the so-called “death cross”, when the 50 Day EMA breaks down below the bottom of the 200 Day EMA. This is typically a very negative turn of events, and it does suggest that perhaps we could go lower at this point. If we do, then we need to break down below the 14.40 Rand level to clear the support region that we have been testing for a while.

The question now is more or less whether or not we can break down from here, not necessarily whether or not we are negative enough to do so. The market has been selling off for a while and you could look at this as a potential “working off the froth” of the overall downtrend. If that is the case, then we will break down and go much lower.

On the other side of the equation, we could rally and bounce to the 15 Rand level, which would be a significant recovery. However, I would anticipate that there would be a certain amount of sellers in that area that could put downward pressure on this market, and I think that would be about as far as this pair is likely to bounce during a move like that. After all, the trend has been down for a while and I think that continues to be the case going forward. In a world that offers very little in the way of interest, it does make sense that people will continue to favor some of the higher-flying currencies such as the South African Rand.

The market will continue to be very choppy and volatile, but at this point, it is very likely that we see a lot of external factors coming into the picture, not necessarily anything related to shaft Africa itself.