- The USD/ZAR dropped a bit during the trading session on Wednesday, but quite frankly we are still in the same region that we have been in for a while.
- In fact, you can draw a bit of a symmetrical triangle, and therefore open the possibility of a bigger move given enough time.
- At this point, it looks like the sellers are starting to try to overtake things, but I would not read too much into the markets at this part of the year.
As liquidity disappears, it’ll be interesting to see how emerging market economies and currencies behave because quite frankly we could see a lot of volatility, or we could just simply see the market do almost nothing. We are between the 50-Day EMA and the 200-Day EMA indicators, which will often cause some type of squeeze given enough time. After all, they are both widely followed technical indicators, so it makes a lot of sense that you would have people out there playing both sides of the fence.
Emerging Markets are Dangerous During Holidays
Keep in mind that the South African Rand is a commodity haven, as South Africa is a major export economy when it comes to hard assets. Furthermore, people must be willing to step out far on the risk appetite spectrum to invest in South Africa, so if the outlook for the rest of the world is weak, it’s difficult for South Africa to pick up steam. However, hope burns eternal for most investors, and they will find something to glom onto one way or another as far as risk appetite is concerned. I think between now and the end of the year we could very well bounce around in this general vicinity, with the 17.50 Rand level being one that we need to pay special attention to, as the market has been so attracted to that area.
Nonetheless, keep in mind that these last liquid pairs could see quite a bit of volatility, as there’s almost nothing out there to decide between now and New Year’s Day. With that being the case, keep your position size small, or stay out altogether to be safe. That’s probably true with most markets, but these emerging market currencies can be particularly dangerous during holiday trading.
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