- USD/ZAR holding well despite USD weakness vs DM
- Short-term pattern may lead to rally above key resistance
USD/ZAR holding well despite USD weakness vs DM
Over the past couple of months, while the US dollar has been weakening against developed market currencies, emerging market currencies have generally been holding to trading higher. While USD/ZAR hasn’t really gone anywhere during that time, it is nevertheless higher.
This could bode well for the USD vs EMs as we move forward should we see sentiment turn broader favorable towards the USD, and especially if we see risk assets (namely stocks) turn south.
Given the advance off the March lows, especially in the States (~55% of world stock market cap), is certainly in the cards as we progress further into a seasonally weak time of the year. Furthermore, risk is heightened with the U.S. elections on the horizon as well as the real threat of a fall surge with the coronavirus. There are other risks, but that isn’t the point – stocks appear priced for perfection, living in a bubble, and that isn’t the most stable ground. So far stocks have continued to be divorced from the economic reality of things, but one has to wonder how much longer that can last without at least seeing the rise since March challenged in meaningful manner
Getting back to EMFX, stocks souring will almost certainly be a boon for the USD, especially versus the likes of USD/ZAR, USD/MXN, and so on…
Looking at the short-term technical picture, USD/ZAR is currently declining inside a developing channel that can potentially be used as a guide. After the surge we saw earlier this month it could act as a continuation pattern (flag) that helps propel it above the 2016 spike-high (17.76) that recently acted as resistance.
A climb back above this threshold could put USD/ZAR in the driver’s seat to continue towards the yearly high over 19. On the flip-side, should we see price continue to channel lower without breaking the upper parallel, then a bearish bias in the near-term will likely remain warranted. In this event, watch how the 2020 trend-line acts as support should it be met.
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USD/ZAR Daily Chart (still holding ground)
USD/ZAR 4-hr Chart (channel/flag forming)
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—Written by Paul Robinson, Market Analyst
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