The US dollar went back and forth on Monday as we continue to threaten a major breakout against the South African rand. At this point, if the market were to break above the 16.40 rand level, then it would blow through a lot of resistance and it more than likely go looking to reach the 16.50 rand level.
At this point, the market continues to see a lot of noisy behavior, as indicated by the neutral candlestick for the session on Monday. The 16 rand level underneath should offer plenty of support, as it was previous resistance. The question now is not so much whether or not the South African rand is weak, but whether or not the US dollar needs to pull back. We are starting to see a little bit of an overbought condition with the greenback around the world, so would not be a huge surprise to see it play out here as well. Furthermore, when you look at the way the market has been trading of the last couple of weeks, it has become much choppier. After all, the volatility will scare some people, so if you were long of this market already, you may be willing to take profits rather quickly.
The 50-day EMA sits at the 15.41 rand level and is rising. That should offer quite a bit of support from a dynamic standpoint, so as long as we stay above there, I am still looking to the upside. Furthermore, there are a lot of concerns globally out there so it should continue to be an environment where the greenback is favored over most currencies, especially when it comes down to emerging market currencies such as the rand.
Keep in mind that the South African economy is heavily influenced by commodities, and that also bodes well for shorting the rand over the longer term, as a global slowdown will demand a lot less in hard commodities, something that will disproportionally affect the South African economy. Ultimately, this is a market that I think will continue to see volatile and choppy trading, but I do think that it is only a matter of time before buyers get involved in each dip going forward. We could just simply slice through that resistance barrier and continue going higher.
