The US dollar rallied against the South African rand on Friday, as traders continue to see a lot of risk appetite volatility globally. With this, an opportunity might be presenting itself.
USD/ZAR
The US dollar rallied against the South African Rand in the early part of the trading session, but I also recognize that we have a situation where the US dollar is getting a little bit of a lashing at the end of the session as the employment numbers in America are soft. This is a carry trade position just waiting to happen and if we can form some type of shooting star on Friday and if we don't get anything too earth shattering over the weekend, it is very possible that the US dollar drops from here and breaks back below the 16.5 level.
Carry Trade and Technical Barriers
If we do see that happen, I am okay with shorting this market, although I do recognize that we are starting to see a lot of risk premium put into the market and that works against some of these smaller currencies like the South African Rand. With this being said, the 17 level above is a significant barrier and if we were to break above that level, which is also where the 200-day EMA sits, and if we clear that, then I think we have a real shot at a complete turnaround of the trend.
I would love to buy the South African Rand at a cheaper price, so I will be watching this pair quite closely as a breakdown from here could open up another leg lower. There are people out there that are almost certainly going to be betting on the Federal Reserve cutting rates sooner or later, but unfortunately, I think a lot of what we are about to deal with comes down to whether or not something really bad happens over the weekend and that is almost impossible to quantify. Watch the 17 level above; if we break that on a daily close, that changes everything.
Potential signal: I am a seller of this pair below 16.5 level. This would have a target of 16, and a stop loss of 16.65 above.