In the short term, one has to assume that the market is going to be very choppy and sideways and respect the recent consolidation that we have been in over the last couple of weeks.
The ongoing unrest in South Africa has certainly put a dent on the currency as we continue to see the greenback pick up a bit of steam. This is particularly interesting due to the fact that the US dollar lost ground against quite a few currencies during the session, so this makes the USD/ZAR pair rallying a bit of an outlier.
With the South Africans appointing the Army to contain unrest due to rioting as former President Zuma has been arrested, there has been a flight of some capital from the market, and of course with looting, this is not a good look for what is essentially one of the biggest emerging market economies that Forex traders pay attention to. The streets of Johannesburg saw rioting on Sunday after the initial troubles in the Natal region. There have been at least six deaths in this latest bout of violence, as the police had become somewhat overwhelmed in certain neighborhoods. Now that the South African National Defense Force has deployed soldiers to support police, there is the possibility that traders will feel a bit more comfortable buying the rand again.
Furthermore, there has been a record wave of COVID-19 infections across the country, which has led to a shortage of oxygen and hospital beds. With that in mind, the situation will be very fluid and will also be very susceptible to the latest headlines coming out across the newswire. Because of this, position sizing is going to be crucial, but it should be noted that as a general rule, if the US dollar starts to pick up steam again, the South African rand will probably get hammered.
From a technical analysis standpoint, the 50-day EMA sits below the 14.14 rand level, while the 200-day EMA sits at the 14.79 rand level. Even more important, the market has respected the 14.50 rand level yet again, so if we were to break above there on a daily close, it is very likely that the US dollar will continue to go much higher, perhaps reaching several handles higher. In the short term, one has to assume that the market is going to be very choppy and sideways and respect the recent consolidation that we have been in over the last couple of weeks.