If the emerging-market currencies get hammered, the South African rand will not be any different.
The US dollar continued to see a lot of pressure in both directions, as traders continue to try and figure out what is going on with the situation on the ground in South Africa. After all, the looting and rioting still continue to be an issue, but at the end of the day the government is sending in troops to try to quell the violence, which has people thinking that things may settle down a bit. Nonetheless, we also have heard a lot of noise around the US dollar in general, so that is probably something worth watching to begin with.
When you look at the USD/ZAR pair, you can see that we are sitting at the 14.50 rand level, an area that has been important multiple times from both directions. We have formed a shooting star for a couple of days in a row, which of course is negative, but it also should be noted that we are trying to reach towards the 200-day EMA and eventually break up above it. That takes a lot of effort, so it is not a huge surprise to see that we have failed a couple of times.
On the other hand, the market also sees the 50-day EMA to the downside and is reaching higher as it currently sits at the 14.24 rand level. Ultimately, I think that the market will continue to look at this area as a bit of a magnet for price, and now that both of these major moving averages are starting to shrink into the same area, then it will be interesting to see what happens with this squeeze. I think at this point we will probably see an impulsive candlestick in one direction or the other to get moving quickly.
If we can break above the 200-day EMA, then I would be a buyer. If we break down below the 50-day EMA, then I would be a seller. I believe it is probably going to be that simple, because we could shoot higher if the troubles in South Africa get worse, or we could perhaps see a run towards the US dollar in another “risk off” type of move like we have had a couple of times here recently. After all, if the emerging-market currencies get hammered, the South African rand will not be any different.