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Traders will avoid commodity currencies like the South African Rand and run towards safer assets such as US Treasuries.
US dollar has bounced a bit during the trading session on Friday to show signs of life again near the 18 Rand level. Keep in mind that this is a market that has quite a few external forces, not the least of course would be the fact that it’s considered to be a “risky currency pair” in the sense that the South African Rand is highly levered to commodities, and therefore global growth.
If the USD/ZAR currency pair were to break down below the 18 Rand level, not only would it take out a support level that we have seen effective over the last couple weeks, we have seen the 50-Day EMA come into that area as well, so it does make a certain amount of sense that it would attract even more negativity as it would almost certainly open up a lot of downward pressure due to the stop losses that must be sitting below there. In that environment, I would anticipate that the US dollar could drop down to 17.50 Rand, maybe even the 200-Day EMA which is closer to the 17.30 Rand level.
On the other hand, if we turn around and show signs of life again, that would probably be more or less due to a bigger “risk off” type of situation around the world. The 18.50 Rand level is an area that I think a lot of people would be paying close attention to, so if we were to break above there, then I think you have a real shot to reaching towards the 19 Rand level, which is the next large, round, psychologically significant figure. Longer-term, it’s very possible that we could go looking the 20 Rand if the US dollar suddenly sees strength around the world. After all, traders will avoid commodity currencies like the South African Rand and run towards safer assets such as US Treasuries.
- This drives the value of the US dollar higher, if of course there are a lot of debts around the world that need to be serviced in US dollars.
- That being said, I expect a very choppy and noisy market between now and the resolution, but it still looks bullish overall, despite the fact that we have seen a couple of negative candlesticks in the last few days
- However, keep in mind that the US dollar tends to move in the same direction against most currency so you will have to watch all of the Forex markets.
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