Potential signal:
- On a daily close below 16.90, I am selling with a stop loss of 17.20 and a target of 16.33 below
- USD/ZAR is sitting near the 17 level ahead of the FOMC, with traders watching Powell’s tone for clues on rate cuts.
- The pair remains in a broader downtrend tied to commodities and carry dynamics, with key support near 16.7.
Today is the FOMC interest rate decision, and that typically means that the market is going to be hanging on every word by Jerome Powell during the press conference. That being said, he has a long history of upsetting the market, so we'll just have to wait and see how that plays out. But we are hanging around the 17 Rand level, and this is an area that has been supportive and obviously is a large round psychologically significant figure. But I would also point out that we've been in a downtrend since April, and part of this is due to commodities exploding. And that was right around the time when Donald Trump suggested that maybe there was a way to work around tariffs, and the global markets reacted in kind.
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We've seen the US dollar soften a bit, although not against some of the majors. And that's what makes this particularly interesting because this is one of those situations where you get paid to short the US dollar. That's not the most common thing that you will find out there in the forex world. So, I think this is partially a carry trade, partially a commodity trade. We do have a ton of support down to about 16.7.
Range Support and Potential Breakdown
So be aware of that. But if that were to be broken, the bottom is going to fall out, and we could go much lower. That being said, 14.5 is basically where we were in the spring of 2022. So, it's not like a complete collapse. It's probably more like a little bit of normalization. The Federal Reserve interest rate decision and, more specifically, the press conference, are going to be parsed very closely. We'll see what he says. Jerome, how is that about rate cuts? If he makes it sound like rate cuts are not coming down the road on a somewhat automatic cadence, it'll be interesting to see how this pair plays out, because this is about global growth.
I suspect if you do get a rally here, sooner or later, signs of exhaustion appear, and you can start selling again, but if we break to a fresh new low, this thing could start moving. This is an exotic currency pair. So, of course, you need to be cautious with your position size but notice how it just grinds in one direction for long periods of time. We are at a major inflection point. So, watch that. A break above the 50-day EMA could have buyers running back in and trying to push the dollar back to the 17.5 level.
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