Potential signal:
- I am a firm believer in risk appetite being the biggest driver here.
- If we can break above the top of the candlestick from the trading session on Friday, I think the market will take off from the 18.40 level and go looking to the 18.62 level.
- I would have a stop loss tucked in just below the 18.25 region.
- It's easy to see that the 50-day EMA has caused a bit of trouble.
- We initially broke above there only to turn around and show signs of weakness. The 18.25 level is going to continue to see a lot of action.
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This is an area that a lot of people will look at through the prism of market memory due to the fact that the previous support now has so much market memory attached to it that it's going to be difficult for the US dollar to truly take off. However, if we can break above the highs of the Friday candlestick, that would be an extraordinarily bullish sign. It could have opened up the US dollar going to the 18.53 level where the 200-day EMA is. If we can break above there then it's possible that the 19 level gets targeted next. On the other hand, if we were to break down below the bottom of the Candlestick for the trading session on Friday, it could open up another drop right around the 18 South African Rand level. I think you are going to see a lot of noise here, and quite frankly, this is probably mainly driven by interest rates more than anything else.
Interest rate differential
Remember, South Africa does offer quite a bit in the way of interest rates, and if we have more of a risk-on move, that will put downward pressure here. Keep in mind that the interest rate differential does continue to play a major part in where we go next, but we also have to pay close attention to the technical analysis as well. In general, the USD/ZAR market is a one that I think continues to be very noisy, and therefore think we have got a situation where you will have to be cautious with your position sizing do to the volatility.
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