The US dollar rallied slightly against the South African rand on Tuesday, but we are still very much in a massive downtrend.
USDZAR
The US dollar rallied slightly against the South African rand during trading on Tuesday as we continue to see a lot of noisy behavior. That being said, I think you have a situation where this bounce will end up being a selling opportunity before it’s all said and done.
After all, this is a market that has been very noisy to say the least, but it has been decidedly negative. The interest rate differential continues to favor the South African rand, and the carry trade is very well alive at this point. I just don’t see a situation where you would be looking to get overly aggressive to the upside, at least not without some type of major shift in the overall economic attitude of global finance.
The Carry Trade Advantage
As things stand right now, this looks like a market that is just simply getting a little bit of a relief rally. That relief rally allows us to open up the possibility of fading these short-term rallies and taking advantage of cheap South African rand.
The 50-day EMA sits just below the 16.5 level and that for me, at least, is the ceiling in the market at the moment. To the downside, we could be looking at a move to the 15.5 level before it’s all said and done, but it probably takes some time to get there.
This is more about playing the yield differential than anything else, and as a result, a little bit of patience probably goes a long way here, waiting for some type of value proposition to present itself after a nice bounce. Over the longer term, I do think we continue to go lower, but as things stand right now, we probably have a little bit of work to do in order to bounce and collect more sellers.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
