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U.S. Dollar / South African Rand

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USDZAR trade ideas

1H2023 USD/ZAR (weekly timeframe)Background (a quick look back): The rand's covid recovery, on the back of the Fed’s QE infinity policy and a strong commodities rally, ended in June 2021 after the rand managed to pull the pair to a low of 13.40. The rand got hit by a quick one-two in the middle of 2021 as the DXY found support around 90.00 and the local riots in July which saw the local unit tumble to 16.40 by November. This created the first major impulse wave. The rand managed to pull the pair to a low of 14.40 in 1Q2022, but the party ended when the Fed started its current interest rate hiking cycle at the end of the quarter. Platinum prices also topped out at $1156/oz in the beginning of March 2022. The hiking cycle, external geo-political, global recession, local energy uncertainties and a 28% decline in platinum prices (from March to September) pulled the pair into a 5-wave rip tide (orange channel) to a yearly high of 18.60. The final quarter of 2022 saw the rand stage an ABC corrective pattern which allowed the local unit to pull the pair onto the 38.2% Fibo retracement rate of 16.86. The main factors which supported the rand’s recovery was the DXY which fell off its high of 114 in September and the price of platinum which bottomed at $825/oz in the same month. Platinum has since gained roughly 32% and closed on a high of $1088/oz in the first week of January 2023. Present (where to next): The rand managed to pull the pair onto the critical 61.8% Fibo retracement level of 16.80 from the covid recovery (green) in the first week of January 2023 after a stronger than expected non-farm payrolls report sent the DXY and US 10-year yields tumbling. The critical support range between 16.40 (top of impulse wave 1 and 50% orange Fibo retracement) and 16.80 will give an indication for the rand’s trajectory in 1H2023. The 50-week MA rate of also sits satisfyingly in this range at 16.47. Support: A break below 16.80 will allow the rand to test the 50-week MA and the bottom of the support range at 16.40, the top of the major first wave. A break below the support range will invalidate the major 5-wave impulse wave which could see the pair fall between the orange 61.8% Fibo retracement rate of 15.88 and the 50% green retracement rate of 16.09. The best-case scenario for the local unit in my opinion is an appreciation onto the 200-week MA rate of 15.61 (this move does not seem highly likely now since the Fed is only expected to ease/pause its hiking cycle in the 2H2023). Resistance: The first resistance rate which needs to give way for continued rand weakness sits at 17.30, the top of the orange third wave. A break above 17.30 will allow the pair to climb to the top of the corrective wave B at 17.96 and the psychological rate of 18.00. A close above 18.00 will confirm the fifth impulse wave to the covid high of 19.35. Technical indicators: The weekly RSI is still trending upwards since hitting the oversold range in June 2021 and is current at a neutral level of 49.21 which is rand negative. The weekly MACD is currently holding a sell signal which is rand positive but the gap between the 12 and 26 EMA’s seems to be closing. (SA is the world's leading platinum producer and the rand behaves like a commodity currency hence the emphasis on platinum price action in the description)
by Goose96
3
aFew Trendline basics ♧"A overview in the definition and importance of using trendlines , consolidation and breakouts in trading" -Understand the basics of drawing trendlines, identifying consolidation and support and resistance levels. Get familiar with connecting highs and lows and forming a trendline or reconize consolidation. -Run with the runners by understanding market momentum. Identify runners and follow their trend and use other tools for identifying presure on the runners (such as RSI4) and manage the risk while trading in profit. -Trading the reversal of the breakout as a cycle and understand the breakout and its significant counter value. Identify the breakout and entry points. Recognize the signs of a reversal and exit the position to trade the reversal to the breakout. In this lecture, i hope to cover the basics of drawing trendlines, how to identify runners and trade with them, and how to trade the reversal of the breakout as a cycle. By the end of the lecture, you should have a solid understanding of how to use trendlines to your advantage in your trading strategy. " Trendlines are lines drawn on a chart that connect two or more price points, used to identify trends and potential trading opportunities. Knowing these basics of drawing trendlines, identifying runners, and trading the reversal of the breakout can be a powerful tool when traders look to identify trends and determine entrys & exits points and potential trading opportunities." There are three types of trendlines: uptrend, downtrend, and horizontal (or sideways) trendlines. - Uptrend lines connect 2 a 3 higher bulls (uprising bars), - Downtrend lines connect 2 or 3 lower bears (downsetting bars) - High & Lows trendlines connect high with hights and Low with lows - Horizontal trendlines occur when the price remains relatively flat. • Drawing the trendline and understand the basic is by identifying at least two points on a chart and draw a line that connects them. The line should be drawn along the slope of the trend, either up or down. • Highs and lows trendlines are realized by connecting highs with highs and lows with lows. You should draw a line that runs along the top of the highs. When connecting lows, you should draw a line that runs along the bottom of the lows. • Support levels are price points where demand for an asset (EURUSD) is strong enough to prevent the price from falling further, while Resistance levels are price points where supply is strong enough to prevent the price from rising further. Run with the runners and understand the market momentum. Market momentum is the strength of the current trend in a market and the momentum can be positive (upward trend) or negative (downward trend). Runners are assets with strong positive or negative momentum trends. Traders can identify runners by looking for assets with strong upward price movement, high trading volume, and positive news or market hype. Tools for identifying runners are the use of technical analysis tools such as moving averages, relative strength index (RSI4), and trendlines. Managing risk while trading with runners is the way traders gain profit. Stop-loss orders should be set and avoid trading with too much leverage is necesary to manage risk while trading with runners. Trade the reversal of the breakout as cylce. Understand the breakout and its significance when they occure as an asset's price moves beyond a key support or resistance level, indicating a potential trend reversal and identify potential breakouts and entry points by the use of trendlines and technical analysis indicators to take entrys and exits. Recognizing the signs of a reversal as they occur when an asset's price movement changes direction, signaling a change in trend. Signs of a reversal may include a change in momentum, a break in a trendline, or negative news or market sentiment. Exit the trend for trading the reversal of the breakout should be accomlplished throught soul desire, set profit targets and or the use of a trailing stop-loss orders to manage the risk or take profit while trading the reversal of a breakout. "Support and Resistance & Consolidation" A consolidation occurs when the price of an asset moves within a range, between a defined level of support and resistance. Consolidations can provide traders with opportunities to identify potential breakouts and to trade with runners as they move the price towards the breakout level. Support levels are price points where demand for an asset is strong enough to prevent the price from falling further, while Resistance levels are price points where supply is strong enough to prevent the price from rising further. "Trendlines can be drawn to connect the highs and lows of the price movement during the consolidation period. These will form the upper and lower boundaries of the consolidation range." "Technical analysis tools such as Bollinger Bands, RSI, and Moving Averages can be used to confirm the consolidation and identify potential breakout levels." During consolidations, runners can be identified by looking for assets with a consistent pattern of higher lows or higher highs. Traders can buy when the price is moving towards the resistance level and sell when the price is moving towards the support level. You should set stop-loss orders and avoid trading with too much leverage to manage risk while trading in consodilations ranges. Potential breakout levels can be identified by looking for price movements that break through the upper or lower boundaries of the consolidation range. Traders can enter a long or short position once the price breaks out of the consolidation range. Stop-loss orders can be placed below the support level for a long position or above the resistance level for a short position. Managing risk while trading the breakout is through a set profit targets and or use of trailing stop-loss orders to manage risk when trading the breakout as breakouts are reasons why traders intent to spot and run with runners , without jumping the gun. "Recap the lecture by knowing the basics of drawing trendlines, identifying runners, and trading the reversal of the breakout." The basics of identifying consolidations, trading with runners during, the 3 trends, consolidations and trading the breakout ..all may provide traders with opportunities to identify potential profitable Forex trades and trade with runners as they move the price more than often. "Traders use it as a powerful tool to identify trends and potential trendline breakout trading opportunities!" • HappyForexTradingJournal J
Education
by ATU_TAD
USDZAR - the rand finding friends hard to come by The ZAR (South African rand) has come up on the radar as sellers have dominated and a true buyers strike ensues. We’re seeing longer-dated South African govt bonds sell off aggressively, with yields on 25yr government debt rising above 12.5% and the highest levels since 2020. The energy shortage continues to take a toll on economics and talk of increasing stagflation risks will typically attract currency sellers – the April CPI print (due 24 May) could be important in determining if the SA central bank (SARB) is indeed ready to pause in its hiking cycle, with SARB policy meeting due 25 May. Geopolitical issues are also weighing to an extent with the US ambassador to SA accusing the country of supplying arms to Russia. Favour buying weakness in USDZAR into 19.05.
Long
by Pepperstone
Q. Why when the FED raises interest rates does the rand weaken?A. Whenever you think about a country raising interest rates, we need to consider what happens to investors and where they are more likely to deposit their money. So, as we are expecting an increase in interest rates this month from the FED, there are a few reasons why we can expect the rand to weaken further: Here are three to consider… Reason #1: Investors flock to the US Dollar When the US Federal Reserve raises interest rates, it becomes more attractive for investors to hold or buy US-dollar denominated assets. That’s because they know they’ll receive a higher rate when they invest in it. This will also lead to a rise in the US dollar and a drop in smaller currencies (like the rand). Reason #2: US Dollar is still the fat cat of reserve currencies A rise in US interest rates may lead to higher borrowing costs globally. This is because the US dollar is still the world's primary reserve currency. When we think of gold, Bitcoin and other precious metals, we think of how it’s priced in US dollars. The problem with this, is that emerging market countries, like South Africa, will face higher debt-servicing costs as the US interest rates continue to move up. And this could continue to put pressure on their economies which will lead to a depreciation in the rand. Reason #3: South Africa is still a big exporter Also, South Africa remains one of the major exporters of commodities. And the value of the rand is linked to fluctuations in commodity prices. So, when US interest rates rise, this leads to a stronger US dollar. And can cause commodity prices to drop (as they are generally priced in US dollars). As South Africa is a major commodity exporter, the lower commodity prices would have a negative impact in SA’s export revenue – which can in turn weaken the rand further.
Education
by Timonrosso
1
Pre-FOMC; When in doubt, zoom out.It is guaranteed to be a volatile week given the stacked economic calendar. Tonight, the Fed is expected to hike interest rates by 25bps, and on Friday we have the always highly anticipated US non-farm payroll data. As per my previous idea, I got the timing wrong for my expected move to 18.55 but I’m still holding my buy orders in placed around the 18.21 level which coincides with the 50-day MA and the black 61.8% Fibo retracement rate. The rand was on the backfoot yesterday which saw the pair push up into the red resistance range between 18.50 and 18.55. The dollar is however weaker across the board this morning which is allowing the rand to pull the pair lower towards the navy-blue downward channel’s neckline. It seems as if the pair broke out of this downward channel but don’t rule out a retest of the upper neckline of this channel (support range between 18.28 and 18.33). A break below this support range will allow the pair to re-test 18.21. 18.21 is a critical support level, a break below will invalidate my expected move above 18.55 and will allow the rand to pull the pair into the blue support range between 18.00 and 18.10. The resistance rates to watch sit between 18.50 and 18.60. A break above this range will confirm my expected 5-wave impulse and the test of the yearly high at 18.71. The daily indicators are rand negative. The MACD is holding a buy signal while the RSI still has plenty room to move higher before sliding into overbought ranges. Fundamentals (latest US data prints): The writing is on the wall for a stagflation environment over the next 3-5 years. The latest US GDP print for the 1Q2023 came in at 1.1%, down from 2.6% QoQ. It is clear that the US and the Fed won’t avoid a recession or the “soft landing” bs they refer to. But wait there’s more, the recent interest rate cycle has not managed to contain inflation, gasp, with the latest PCE price index rising by 4.2% in 1Q2023, up from 3.7%. A low growth inflationary environment does not bode well for risk assets such as the rand and the recent fragilities in the US banking sector will only increase investor risk-off sentiment. All these factors are rand negative. Zooming back to the present, yesterday’s trading saw the DXY close lower after it touched a three-week high of 102.409. The DXY is firmly on the backfoot this morning and is currently back below the 102 handle in the lead up to the Fed hike. There were also some peculiar moves in the US bond market in yesterday’s session in the lead up to today’s Fed rate decision. US bond yields cratered as the US 10-year yield fell from 3.575% to 3.429% while the shorter dated 02-year yield fell back below 4%.
Long
by Goose96