The US dollar pulled back a bit against the South African rand on Wednesday to reach down towards the 200-day EMA. The 200-day EMA currently sits at the 14.7 rand level, which is an area that a lot of people will be paying attention to. The 200-day EMA typically will give traders the idea of the longer-term trend, and if it starts to rally from here, then it is likely that the price will as well. On the other hand, if we break down below the 200-day EMA, then it is likely that we could go looking towards the 50-day EMA underneath, presently sitting at the 14.53 rand level.
The most recent move in the US dollar has been somewhat parabolic, which is not a huge surprise when it comes to this market as it is an emerging market. Furthermore, there are a lot of concerns when it comes to the idea of global growth, and South Africa would be a place that people might run from. The US dollar represents safety, as we have seen a lot of the inflows into the bond markets pick up. This is going to continue to drive the value of the US dollar higher overall, but at this point we have some questions, specifically in the form of the 15 rand level.
If we can break above the 15 rand level, then I think we go much higher. On the other hand, if we cannot break above that level, then you have to start looking at the 14.5 rand region, which is right in the middle of the previous consolidation area that extends all the way down to the 14 rand level. The 14 rand level is an area that I will continue to pay close attention to, because it has been so supportive multiple times in the past. Breaking that would be a very negative turn of events, perhaps sending the US dollar plunging against the rand. That being said, if we break above the most recent highs near the 15.33 rand level, I suspect that South Africa will find a lot of trouble. Ultimately, a little bit of a pullback probably makes a bit of sense considering what we have seen, but there still seems to be plenty of momentum.
