USD/ZAR Forecast: Overextended Against South African Rand - 7 April 2020

The US dollar has exploded to the upside against South African Rand as of late, considering that the market had been as low as 15.50, but then extended and just a few short weeks all the way to the 19.37 handle. During the trading session on Monday, the market has pulled back from the highs and it looks as if we are going to get an opportunity to perhaps see this pair pullback. Whether or not you believe that it is the absolute top or not it is totally irrelevant, because quite frankly the market is overdone. At this point it’s very difficult to buy this pair as it is far too overextended at the moment. Ultimately, I think at the very least we need to see some type of pullback to find reasonable levels.

To the downside, there is a gap that sits just above the 17.50 Rand level, which is also supported by the 38.2% Fibonacci retracement level. Because of this, that would be the first area I would anticipate that this market to go looking towards. It’s not necessarily that I want to short this pair, but I do recognize that we are going to go lower. A sign of support in that area could be a longer-term buying opportunity but there is also the possibility that we break down below there and go looking towards the 50 day EMA underneath which is closer to the 16.50 level right now.

Keep in mind that the pair is a representation of the US dollar versus emerging markets, as the South African economy is quite often use as a proxy for about half of Africa. Furthermore, a lot of people will extrapolate this out to risk appetite and of course that will be paid attention to as well. As stock markets around the world rallied a bit it makes sense that the US dollar would lose a little bit of strength, even against the South African Rand. That being said, I don’t expect a major trend change but a significant pullback to the 17.50 level is a real possibility that needs to be kept in the back of your mind. The alternate scenario of course is that we turn right back around and break above the highs, which could open up the door to the 19.50 level but it’s extremely dangerous to buy a currency pair that is extraordinarily parabolic.

USDZAR

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.