The US dollar continues to tread water against the ZAR on Monday, as traders are trying to weigh risk appetite.
USD/ZAR
The US dollar has gone back and forth against the South African rand on Monday as traders awake to a significant number of headlines that are moving risk appetite. After all, we have seen the Americans take over an Iranian oil tanker as hostilities are starting to pick up again in the Strait of Hormuz. This has the effect of interest rates rising in the United States as people start to price in the idea of energy inflation. That being said, it does push the value of the dollar higher, but at the same time, the interest rate differential still favors South Africa.
While South Africa may be prone to energy shortages or pricing shocks if this keeps up, the reality is that it's starting to look like most traders are at least pricing in the idea of the war coming to an end sooner rather than later. If that does in fact end up being the case, it makes sense that this pair would continue to fall, and that makes sense when you look at the overall technical analysis.
Resistance and Support Levels
There does seem to be a massive amount of resistance near the 16.5 level, not only from a structural standpoint but the fact that the 50-day EMA sits right there as well. Underneath current pricing, we have seen a little bit of support in the neighborhood of 16.3 and breaking down below there opens up a drop down to the 16.2 followed by the 16 level.
All things being equal, you get paid to be short of this pair and I think that will ultimately win the day. If we do rally from here, I would be looking for signs of exhaustion to start selling again, as the market has shown itself to be rather resilient despite the fact that interest rates shot straight up in the air right off the open. The reality is that we have seen a turnaround since then, so I think the market is trying to price in.