For short-term trade, we may have the possibility of going long on a break of the bullish flag that is forming.
The US dollar rallied a bit against the South African rand during the trading session on Monday, as we have bounced from the 50-day EMA during the previous trading session. If you look at the chart, you can see there is a little bit of a bullish flag forming, which could open up a move all the way to the 15.25 rand area. That being said, there are a couple of things to pay attention to between here and there, namely the 14.50 rand level, which is an area that has been support and resistance.
When you look at this chart, you should also keep in mind that it is an emerging market currency and prone to erratic movement. That being said, if we start to see more of a “risk off” attitude, then it is likely that we could see the US dollar strengthen quite drastically. This is a market that could go racing towards the 200-day EMA rather quickly, as it is a bit of a magnet for longer-term trading. Beyond that, the market is also going to be highly sensitive to the idea of what goes on with the yields in the bond market and the yield differential between the United States and South Africa.
To the downside, if we break down below the hammer from the trading session on Friday, that could open up a move to the downside, perhaps reaching towards the 13.50 level. At this point, we are still technically in a downtrend, and not until we break above the 200-day EMA or even the 15 rand level would I be aggressively long of this market. For short-term trade, though, we may have the possibility of going long on a break of the bullish flag that is forming.
For what it is worth, I am starting to see the US dollar strengthen against multiple commodity currencies, so the question at this point is whether or not it is simply the US dollar being in a bit of an oversold state, or if it is something bigger. At this point, it is simply a trade, but if we do take off above the 15 rand level, it could be a much bigger deal.