As far as exotic pairs go, the USD/ZAR pair is one of my favorites. (Before you click away and try to figure out what “ZAR” is, I will save you the time and tell you is it the South African Rand.) The biggest thing that I like about this pair is that the Rand is so highly correlated to gold. Unlike the Aussie dollar, the Rand is able to express the gold market and its view much cleaner as there isn’t as much noise involved in it. For example, the Aussie can also be highly influenced by the Chinese economy as that country imports so much from Australia.
The Rand on the other hand is basically influenced by the demand for gold only. The South Africans aren’t necessarily large trading partners of any of the major currencies, and as a result the currency is a reflection of the health of the gold markets as the South Africans have so much of it underground. The mining industry in South Africa is strong in both gold and diamonds, making the Rand a great “precious metals and stones” play.
8.21 – 8.00 support?
The chart saw a massive fall on Monday, and the pair is sitting on the 8.21 level. This area was the start of serious consolidative forces back in December, and should be supportive in the meantime. The pair is a bit extended at the moment, and a pullback was needed. A move all the way to 8.00 is possible, as the consolidation area goes all the way to that level. The highs from the month of April also extend to roughly 8.00 so it makes sense that the area would offer strong support, if we get there.
The 50% Fibonacci level from the move higher also is at the 8.00 level, and as a result this looks like a strong contender for a buy. This suggests that the gold markets may continue to rise for a day or two, and pullback. As someone who watches gold, I can tell you this is a very plausible scenario. With this in mind, I am going to be waiting for supportive price action in the 8.21 to 8.00 area as the next day or two could provide a nice long set up.