Speculators have certainly gotten a taste of dynamic trading within the USD/ZAR in the past week. The forex pair was testing vital support near the 16.100 vicinity recently and then experienced a rapid reversal higher which bursts through resistance levels. As global risk appetite has fluctuated so has the South African Rand. Additionally, the price of gold and its decrease in value which developed in September cannot be discounted either and it may be playing a part in the recent ignition of another bullish run higher by the USD/ZAR.
It is hard to correlate the price of gold to the USD/ZAR on a daily basis because the timeframes can prove difficult to quantify technically. However, as the precious metal has come off of its record highs and incrementally begun to trade within more earthbound levels, the USD/ZAR has experienced some buying momentum which has seen the forex pair cross the 17.000 resistance level and challenge new high water marks not seen since August.
Speculators have an opportunity within the USD/ZAR to pursue it technical momentum which often moves within solid trends. September saw a strong bearish move continue for the USD/ZAR until the 18th of September when a reversal developed. Interestingly, the bearish trend did test a major support level not traded since early March. While the sudden price climb which has developed has brushed aside resistance levels easily, speculators may be tempted to look for the emergence of another bearish trend. The question is when and how this bearish trend can develop?
Global risk sentiment has taken a hit in the past few weeks with unsteady trading starting to be demonstrated on equity indices, particularly within the US markets. The South African Rand is a solid barometer of risk sentiment and if investors are optimistic the USD/ZAR tends to show a capability to create bearish momentum, particularly when the USD is perceived to be weaker. Traders may want to wait for a couple of days of positive movement on global equity indices to embrace a more optimistic outlook, which would include selling the USD/ZAR.
Mid-term the USD/ZAR has certainly enjoyed a healthy bearish trend, but the past few days of trading have put the value of the forex pair into a dangerous value range where resistance levels from mid-August could be put to the test. If global investors become risk adverse it is conceivable the USD/ZAR could test the 17.100 to 17.650 value range rather easily. Speculators looking to take advantage of a bullish trend higher should place their stop loss orders near the 16.980 level as protection.
However, if another bearish trend emerges the key signal for sellers may be the 16.800 level. If the USD/ZAR is able to break through this support level and sustain trading below it is likely targets of 16.500 to 16.300 could be demonstrated. However, in order for another bearish trend to develop in the USD/ZAR it will help to see an increase in global risk appetite in equity indices and some bullish buying in the price of gold.
For the time being, the outlook for the USD/ZAR remains challenging and buying the USD/ZAR under the present trading conditions may prove to be the better opportunity in October. The sudden reemergence of a strong bull run in the USD/ZAR the past week should serve as warning.
South African Rand Outlook for October:
Speculative price range for USD/ZAR is 16.200 to 17.800.
Support at 16.800 could prove an important inflection point; if this level is broken lower another test of 16.50 to 16.30 could develop.
Resistance at 17.350 could prove significant, if it is broken higher it could signal a bullish move to 17.800.
