The USD/ZAR has developed a strong bearish trend and the forex pair has seen resistance levels incrementally decrease the past few weeks as support levels prove vulnerable. As gold continues to find speculative buying the South African Rand has certainly gained a fundamental correlation for traders to consider. Momentum in the USD/ZAR has allowed speculators to test the downside, while using stop loss ratios slightly above technical resistance junctures. The level of 16.8000 has become a resistance level which has held since the middle of July and traders may believe this is a level which they can use as a barometer for risk appetite as it fluctuates.
The USD/ZAR certainly remains a speculative forex pair which generates plenty of volatility, but the pair behaved quite well in July and has found a relatively steady range between 16.4000 and 17.0000 since late in the second week of July. Yes, support has been tested in late July, the mark of 16.4000 is an important support ratio and if it can be broken and traded below for a solid duration and not trade above the 16.5000 mark steadily, it could prove a catalyst for further downside movement. The question speculators are likely asking themselves is if the bearish trend has been too strong and is it time for a reversal upwards that tests resistance?
Global sentiment appears to have an optimistic outlook. While there will certainly be short term challenges of risk appetite and markets will no doubt display nervousness periodically, the momentum of equity indices supports the notion August may continue to produce additional gains. Gold has gained rapidly in July and its energized buying has helped the USD/ZAR pair be sold off in forex. Interestingly, the USD/ZAR has not produced violent spikes, the lack of volatility and its polite downward trend suggests we have not seen the end of its bearish values.
The 16.4000 level is vital and if this support level is vanquished and does not produce strong reversals, speculators may believe there will be more room for potential downward momentum of the USD/ZAR. A target of 16.2000 could prove very important, because below this level a stretch of choppy trading took place in early March. The question is if the USD/ZAR can sustain its selling if it breaks the 16.4000 juncture, consolidate and then test lower values.
Traders should not expect fast moves downwards and they should be positioned with careful stop losses if they are pursuing downside action. Risk sentiment has turned fragile for the time being, and while this may prove a momentary consideration, reversals are always possible higher. However, what is interesting about the USD/ZAR has been its ability to steadily create relatively strong resistance the past few weeks, and if the 16.7000 to 16.8000 junctures prove strong as resistance and do now allow a bullish push upwards, sellers of the USD/ZAR could keep lower targets near 16.3000 and 16.2000 as their goals.
After putting in a steady bearish trend the past few weeks, there may be those who believe an upwards reversal will take place because of the concerns South Africa faces economically because of coronavirus. The question of risk and reward need to be weighed carefully and consideration must be given to the significant gains made in gold, which may serve to underscore the value of the South African Rand.
Selling the USD/ZAR and targeting support near the 16.0000 level may feel like a distant dream, but if the South African Rand continues to consolidate and incrementally test support levels in August this value level may prove a capable target.
South African Rand Outlook for August:
Speculative price range for USD/ZAR is 15.7500 to 17.2000
Support at 16.3000 is an important level and if broken below, momentum downwards could result in a test of 16.0000 and lower.
Resistance at 16.9000 appears to be strong, but if this mark is toppled then 17.2000 could see a test.
