South African Rand could be next short squeeze target
Joe Perry February 16, 2021 6:43 PM
Although there are both fundamental and technical reasons one may wish to buy USD/ZAR, do your own research.
After failing to squeeze silver shorts, participants on a popular website forum have been discussing shorting the South African Rand as their next target for a short squeeze. However, the author also notes that “this isn’t a short-term swing trade”. This may be correct from both a fundamental and/or a technical standpoint, but it would be difficult for an online forum to take on the South African Reserve Bank (SARB), ala George Soros vs the Bank of England. However, the SARB has been worried about the direction of the economy after cutting 300bps in 2020. In addition, the South African variant of the coronavirus making its way around the world, B 1351, is said to be more contagious than the original virus. In addition, vaccines may be less effective on the South African strain. THESE may be reasons to short the Rand.
On a daily timeframe, USD/ZAR has been moving lower since putting in pandemic highs on April 6th, 2020, forming a descending wedge. Price has pulled back to pre-pandemic support, and briefly spiked to a new low today at 14.7079. In addition, the RSI has made 3 higher lows as price has put in 3 lower lows. Price is currently trading mid-range in the wedge between 13.92 and 15.50.
Source: Tradingview, City Index
Rumors circulating that the Rand may be the next short opportunity did help lift USD/ZAR off the support area (on the daily timeframe). However, on a shorter 240-minute time frame, the pair had moved below a descending wedge of its own, only to move back into the wedge and test the upper downward sloping trendline near 14.6877. The target for a descending wedge is a 100% retracement of the move. If price does break though the upper trendline of the wedge, it must first get through horizontal resistance at 14.7754, the 38.2% Fibonacci retracement of the January 11th highs to today’s lows near 14.8822, then the 50% retracement of the same timeframe near 15.03 (the top trendline of the wedge on the daily timeframe also crosses near this level).
Source: Tradingview, City Index
First support below today's lows of 14.3980 is from January 2020 near 14.2729, then the bottom trendline on the daily timeframe near 13.9500
USD/ZAR has been in a downtrend since the March pandemic highs. Although there are both fundamental and technical reasons one may wish to buy the currency pair, do your own research. Don’t just follow a website forum. Due to the leverage traders get in the fx markets, if a trade goes against someone, that person can get carried out very quickly. Use stops and exercise good risk management.
Learn more about forex trading opportunities.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.