During last few days Rand was appreciating against US dollar or, should we say, US dollar was losing value against all major currencies and commodities, so Rand was gaining against it too.
We should take a look at what end of the day chart is telling us:
Firstly, USDZAR is in clear downtrend from peak that was made in July 2008 (when risk appetite for emerging markets dried out). From almost 12.00 we came all the way down to 7.00, where it is trading now.
On downside (ZAR appreciation) we can look at 7.00 level that was breached yesterday for short period of time, but pair bounced back above. Below we have 6.80 that played massive role in the past. From 2005 all the way to 2007 – 6.80 was resistance, then support, then resistance again and then support again, and it looks this time around it will act as support again. If that level is broken we can see more downside for USDZAR with potential target in 5.70-5.90 region.
On the upside first resistance to watch is 7.20 that acted as support for more than a year (from August 2009 till few days ago). Above that we have downtrend line that currently seats around 7.35 and if that level is broken, than we again have horizontal resistance around 7.80-8.00.
For now I guess USDZAR will test 6.80, but from there on, I believe one should be very careful. Fast bounce towards 7.20 is most probable scenario after test.
Looks like RISK is ON for now and money is flowing into South Africa.
Trade with trend!