The US dollar has rallied against the South African Rand over the last three days, ripping apart short-sellers, and catching quite a few traders by surprise.
The market is very oversold, as the greenback has been busted up rather drastically. That being said, the market is very likely to continue to see a lot of interest in this pair, because we are pressing up against a very major area. We have just broken above the 50 day EMA, although the moving average in and of itself is not the reason to think that we are going to sell off.
The 15.50 Rand level is going to be crucial, and the fact that we are heading into the major level as we head into the Non-Farm Payroll announcement suggest that perhaps we are about to make a bigger decision. Because of this, it is going to be very difficult to get involved and start buying or selling until we get that out of the way. After all, the announcement does tend to offer a lot of volatility, especially in these exotic currency pairs. Because of this, I would be very cautious about buying into the pair, just as I would be cautious selling into. However, at the end of the day we could see a clear signal as to which direction we are going to go.
If we fall rather significantly by the end of the session on Friday, then I believe that we continue to go lower, which of course is right in line with the downturn. However, if we break higher, perhaps closing above the 15.75 level, then we could see the beginning of a trend change. After all, we had just bounced from an area that was supportive on longer-term charts, especially when you look at weekly or even monthly time frames. Having said that, keep an eye on the idea of stimulus and of course the reflation trade as the South African Rand is a commodity currency.
As an outlier, South Africa has a coronavirus strand that is mutating, and that has a lot of people concerned about travel to and from that country, and perhaps even investing. That could be the outlier that keeps the US dollar strengthening against the Rand, but only time will tell and of course we need to see some type of clarity.