The USD/ZAR moved upwards in February with very little headwinds blocking its way as the currency pair took a double punch of negative concerns, creating strong bullish price action.
February was not a good month for the South African Rand as it saw its value grow weaker against the USD on a fairly consistent basis. The USD/ZAR is now challenging highs it last saw in October and early November of 2022. The rather nice bearish cycle for the USD/ZAR which saw a steady trend downwards from early November until the middle of January has been brushed to the side. Worries about a lack of electrical supply in South Africa, and rhetoric from the U.S Federal Reserve have combined to create extremely nervous behavioral sentiment which may not vanish quickly.
It appears the USD/ZAR is going to start March near the 18.40000 price vicinity and for traders who want to look beyond six month and one year data, five year charts could provide insights. During the height of coronavirus worries, the USD/ZAR did trade above the 19.00000 price level momentarily on occasions with very volatile conditions from March until early May of 2020.
Unfortunately for the South Africa nervous behavioral sentiment regarding the inability to supply a reliable daily source of electricity is not going to be solved soon and this may create a layer of support for the USD/ZAR. The addition of an aggressive U.S Federal Reserve, which continues to try and fight stubborn inflation and speaks about raising interest rates over the mid-term, may help the USD/ZAR linger within the upper part of its already high price range.
A move above the 19.00000 may sound farfetched to many traders and a step to far to consider, but if the USD/ZAR is able to sustain prices above the 18.40000 in the near-term and week ahead, this could set a dangerous test of technical and fundamental concerns to come. The U.S will release jobs data on the 10th of March and inflation statistics on the 14th. It should be remembered global financial houses that bet on weakening jobs numbers and less inflation in early February were wrong, and this helped fuel the bullish buying of the USD in Forex and the USD/ZAR was caught in this trend.
- The U.S Fed will release its monetary policy outlook on the 22nd of March and raise its interest rate with a likely increase of 0.25%, which has already been factored into the USD/ZAR.
- However, if the coming U.S jobs and inflation data continues to come in higher than anticipated, this could set the table for more U.S Federal Reserve hawkish rhetoric, which could create another round of aggressive USD/ZAR buying.
Speculative price range for USD/ZAR is 17.59500 to 19.12000
Speculators who believe the USD/ZAR has been overbought may want to reexamine their thinking. It is likely that only technical traders may feel this way if they tend to think in a contrarian manner. Certainly a trader could step into the USD/ZAR and try to sell it at the current heights the currency pair is traversing and bet on a reversal lower. Cycles of selling in the USD/ZAR will definitely be seen, but the question is how long they will be sustained? Pursuing downward momentum in the USD/ZAR with overly ambitious selling could prove very dangerous. The 18.0000 mark below may look alluring for USD/ZAR sellers to target, but if this is the goal it should be done in incremental steps using take profits along the way.
The month of March could prove to be very volatile for the USD/ZAR as it traverses close to apex highs. The problems with rolling blackouts in South Africa are not likely to be fixed in a matter of weeks. Open questions about corruption and criminal activity within Eskom, the government owned electrical company in South Africa, remain heightened within news publications and the broadcast media.
Traders who want to target more buying because of the very strong trend seen in February cannot be blamed. However caution is urged and day traders must consider the cost of pursuing the USD/ZAR with positions which may need to be held longer than anticipated. If the USD/ZAR maintains its current value range over the next week and half, this could be a signal additional bullish activity will develop, but this will depend on the outcome of U.S data. Yes, the USD/ZAR is testing high values and it may continue to climb, but targeting higher prices should be done with narrow take profits orders and solid risk management. March promises to be a rather volatile month for the USD/ZAR, please be careful.
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