Financial institutions and day traders will have to brace for the potential of volatility in the South Africa Rand today and this week as election results have created a lack of clarity.
- As of this writing the USD/ZAR is near the 18.80050 ratio with sharp fluctuations streaming on to the trading screen.
- Election results from South Africa were weaker than the African National Congress anticipated and its ruling majority now needs a coalition government mandate.
- The question is if the ANC will bring forth a political coalition which bridges the nation into the future by creating a working relationship with the Democratic Alliance party, or turns hard-left and looks to negotiate with the EFF and MK which some view as a doomsday scenario economically.
The USD/ZAR hit a low of nearly 18.21760 last Wednesday, but this occurred as financial institutions in South Africa were shuttered while the election was taking place. Since the middle of last week the USD/ZAR has climbed higher and this morning’s price action hit a high of nearly 18.87355 which was below last Friday’s apex around the 18.90085 ratio.
Traders Who Want Calm Should Not Trade the USD/ZAR Near-Term
It is recommended that only speculators who have solid risk taking tactics trade the USD/ZAR near-term. There will be volatility as whispers from political parties are heard and financial institutions react. The climb to last Friday’s high touched levels in the currency pair what had been seen in the last week of April. Let there be no doubt that businesses and financial houses in South Africa that favor an open market and free enterprise do not want to see a hard-left coalition emerge. If rumors start to build that this is a real possibility the USD/ZAR will gyrate quickly higher.
Traders who prefer calm speculative waters while trading the USD/ZAR might want to sit on the sidelines. If the ANC actually does consider a political relationship with the Democratic Alliance, which runs the Western Cape Province rather effectively, this would create optimism in the USD/ZAR and a potential bearish trend. The decision is for the African National Congress to make, and the implications are big. The ANC has two weeks to announce their coalition partners.
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Support and Resistance Levels and Trend Following
The USD/ZAR needs to be watched carefully. If a strong trend develops upwards with a sudden burst, traders may not want to want to look for reversals right away. Conservative leverage is urged in the USD/ZAR.
- Behavioral sentiment is a key for the USD/ZAR as impetus comes via political news that swirls in South Africa.
- While support and resistance levels technically should be watched, they might not prove durable in the short-term depending on parameters and reactionary trading which develops.
- If traders want to pursue upwards momentum near-term they cannot be blamed, but they should use quick hitting take profit orders to capture profits before abrupt reversals threaten to happen.
USD/ZAR Short Term Outlook:
Current Resistance: 18.88500
Current Support: 18.79100
High Target: 18.97100
Low Target: 18.77200
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