Potential Signal:
- On a pullback in this pair, I am more than willing to buy the US dollar at 18.40, with a stop loss at 18.20.
- I would be aiming for a move to the 19.10 level.
During my daily analysis of exotic currency pairs, the USD/ZAR pair has captured my attention as the overbought condition of the US dollar finally caught up with it on Friday. The market had gone parabolic over the last couple of weeks, so it was probably only a matter of time before we started to see the US dollar give back some of its gains, but quite frankly I think you’ve got a situation where buyers will almost certainly be waiting underneath to take advantage of “cheap greenbacks.”
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South Africa and Emerging Markets
Keep in mind that the South African Rand represents an emerging market, and therefore it has to be treated a little bit differently than most other currencies that you might trade. The spread can be quite wide, but at the same time you also have to keep in mind that a lot of what will drive this pair will be risk appetite. Quite frankly, people do not want to risk a lot with a currency like the South African Rand when there is a lot of fear out there, and then of course you have the fact that the US interest rates simply will not drop for a significant amount of time, and that could continue to be a major issue here as well. With all of this being said, I think you’ve got a scenario where you are looking for value, perhaps near the 18.40 ZAR level.
On the upside, we have the 19 ZAR level offering pretty significant resistance from a short-term chart perspective, but I think the real ceiling is probably closer to the 19.40 level. Anything above there would be rather explosive and bullish, but I think we have a long way to go before we see that. Furthermore, you have to keep in mind this time of year does not have a ton of liquidity, especially in the smaller more exotic pairs. With that being said, you need to be cautious with your position sizing but it’s obviously a very bullish market at the moment.
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