South African Rand could be next short squeeze target
Joe Perry February 17, 2021 5:43 AM
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.
From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.