- The US dollar struggled against the South African rand on Friday, failing at the 50-day EMA once again.
- With rate differentials favoring the rand, the pair remains rangebound between 17.00 and 17.50, leaning toward further downside pressure.
The US dollar initially tried to rally against the South African rand during trading on Friday but found quite a bit of trouble near the 50-day EMA, which is an indicator that a lot of people had been paying attention to for some time and, in fact, has, for the most part, acted like a trend line since May. That being said, I think we are essentially looking at a sell-the-rally type of situation because although we did rally, we gave up those gains rather quickly, like we have seen multiple times. Ultimately, this is a market that I think is in the midst of trading in a range between 17.50 and 17.00 rand.
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This is a market that also has an interest rate differential that favors the South African rand, so keep that in mind because you do get paid to hang on to short positions. If we were to turn around and break out to the upside, it’s not until we clear the 200-day EMA—basically the 17.75 level—that I would get overly excited about getting bullish. On the other hand, if we were to break down below the 17.00 level, then I think the US dollar finds itself in serious trouble against the South African rand.
That would, in a sense, be a play on emerging markets and commodities, as South Africa is a bit of a cross-section of both of those potential setups. Ultimately, this is a market that I think continues to see selling, but over the long term, I believe we continue to see a squeeze to the downside, and I just don’t see how that changes, at least not in the short term.
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