The US dollar gapped lower against the South African rand on Monday as we had seen US dollar weakness around the world.
A lot of this would have been in reaction to the idea that maybe there could be some type of peace agreement coming out of the Middle East.
If that actually were the case, then you will probably see the US dollar drop against many currencies and the South African rand makes a certain amount of sense considering that South Africa is a major exporter of commodities and of course considered to be an emerging market. Risk appetite increasing of course helps these types of currencies and economic regions and I would expect that to be the way forward.
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That being said, the USD/ZAR pair are pretty close to a fairly significant support level in the form of 16.28. The market bouncing from here would make a certain amount of sense, but I suspect that the 16.5 level is an area where sellers may return and then the 16.75 level I would expect more of the same.
We are at the bottom of a large consolidation area, and we will have to be very cognizant of the fact that we may possibly see quite a bit of noise here. Pay attention to the 10-year yield in the United States because quite frankly if it starts to drop that could be good for a move to the downside. On the other hand, if the interest rates in America scream to the upside, then that probably sends this market looking to the 200-day EMA above.
All of that being said, the interest rate differential continues to favor the South African rand, and therefore, I prefer to short when offered the opportunity to do so.
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