This has been somewhat of a parabolic move, so it does stand to reason that a little bit of profit-taking is probably a normal event.
The US dollar went back and forth on Tuesday against the South African rand, as we reached just below the 16 ZAR level during the day only to give up those gains. Ultimately, we ended up forming a bit of a shooting star, which is in and of itself a slightly negative turn of events and a candlestick that suggests that perhaps momentum is running out. That being said, much like the breakout against the Mexican peso that accompanies this analysis on the same video, I look at any pullback as a potential buying opportunity.
The 15.50 rand level had previously been significant resistance, but as the US dollar is like a wrecking ball against most emerging market currencies right now, South Africa is not going to be any better. With this, and the fact that South Africa has a major problem with coronavirus and civil unrest that the moment, it does make sense that people will be much more comfortable owning greenbacks. The US bond markets have been on fire as of late, so that also means that there are more demand for US dollars going forward.
As far as selling is concerned, I would not consider doing so until we break down below the 15.00 ZAR level, something that we are nowhere near and would break through the 50-day EMA at the very least. On the other hand, if we were to break above the 16 ZAR level, it is likely that we could go looking towards the 16.50 ZAR level over the longer term. Nonetheless, I think we will probably get there but picking up a little bit of momentum after a pullback probably makes the most amount of sense. This has been somewhat of a parabolic move, so it does stand to reason that a little bit of profit-taking is probably a normal event.
Inflation in the United States continues to run high, so it does make sense that with the Federal Reserve tapering the bond buyback purchase program, that we will continue to see more money flow into the greenback and away from places like South Africa where inflation can cause major issues, much more than some of the more developed economies.