The US dollar has rallied again during the trading session on Thursday, as we have seen a huge “risk off” type of move late in the day. That being said, it does make sense that the US dollar would strengthen against emerging market currencies such as the Rand, which of course has a whole plethora of issues in and of itself. Beyond that, the technical analysis is setting up for a potentially bigger move, so at that point I believe that we are eventually going to see a breakout to the upside.
The first thing that catches my eye is that the 200 day EMA is clearly offering support from the recent consolidation, as we have bounced from it multiple times. The emerging-market currency pairs tend to be a little bit more technically driven because they are more long-term driven than a lot of the other pairs that you may trade. This is why paying attention to the 200 day EMA right at the 50% Fibonacci retracement level really catches my attention as well. I believe that ultimately, we are looking at a scenario where traders are trying to get away from some of the riskier markets, as stock markets start to take a dive as well.
South Africa is a high-yielding currency, but that may not matter much in an environment where people are more or less worried about a return of capital, instead of their return on capital. The 17 Rand level looks to be resistance, but if we can break above there it is likely that this market goes looking towards the 7.25 Rand level, followed by the 17.50 Rand level to the downside, it is not until we clear the 16.40 Rand level that I would be a seller, and it would also have to be accompanied by a general “risk on rally” around the world. Right now, it certainly does not look like that is the case, so I think it will continue to favor the upside, at least for the time being. With this, until we get global growth picking back up it is difficult to imagine currencies like this strengthening against the greenback, especially as demand for Treasuries continues to strengthen in a flight to safety as well. The trading action of the last couple of weeks are starting to look more and more like a bottom.
