The market is running towards the carry trade, which most certainly favors the South African Rand against the greenback.
The US dollar initially tried to rally against the South African Rand on Tuesday but has seen the 200 day EMA offer a bit of resistance. At this point in time, the market has then fallen to reach down towards the 15 Rand level again but did bounce a bit towards the end of the day. All things being equal, this is a market that is simply hanging around the 200 day EMA in trying to figure out whether or not it can significantly break down from here. We are getting relatively close to breaking down through support, and of course we are getting relatively close for a potential “death cross” to form. This is when the 50 day EMA then drops below the 200 day EMA.
If we break down below the lows of last week, that opens up the possibility of a move to the 14.50 ZAR level, an area that has been important previously, and therefore think it makes quite a bit of sense that we would see a bit of a support level in that general vicinity. After that, then we could be looking at the 14.25 ZAR level. Alternately, if we turn around and break above the previous trendline and the 50 day EMA, the US dollar will probably be capped at the 15.50 Rand level.
When you look at this chart, it seems as if we are building a larger topping pattern, and I do think that the market participants are very well aware of this situation. It is difficult to imagine a scenario where we suddenly get very bullish, unless of course there is some major run towards safety and the greenback. That is most certainly possible, but as I have stated in some of my other analysis, the market is running towards the carry trade, which most certainly favors the South African Rand against the greenback. While the greenback does have a little bit of interest attached to it, it still does not do as well as emerging market currencies, as per usual. Ultimately, this is a market that is very choppy in the short term, so you need to think more long-term when it comes to trading the South African Rand. Ultimately, keep your position size relatively small, and then add as the trade works out in your favor.
Source link
