The United States dollar has been very noisy during the previous month, as we are trying to determine whether the carry trade can continue, the market becomes noisier. Fading rallies could be the way forward.
USD/ZAR
The United States dollar has been fairly noisy during the month of February against the South African rand, but I think ultimately one of the things that are worth paying attention to in this pair is the fact that the interest rate differential favors the South African rand by quite a bit and people will continue to flood towards that currency as it pays them to do so, all things being equal.
However, during the month of February, we have seen a couple of attempts to rally, and this has carved out a bit of a massive resistance barrier or at least a clue as to where the sellers may live, and I think that's 16.50 above.
If that market level gets broken to the upside, that could open up a move to the 17.00 level but at this point there isn't much on this chart that tells me that it will be easy. That would probably need some type of major event to have people running for the safety of the US dollar because quite frankly typically traders won't buy this pair and hang on to it because of the interest rate differential.
Market Dynamics and the March Outlook
This is generally more a function of money leaving third world economies and frontier economies to run to the safety of the US Treasury market. In other words, foreign traders are pulling money out of South Africa when this market rises.
All things being equal though, most traders will look at rallies as selling opportunities and that's exactly how I will look at this pair in the month of March. I like fading rallies that show signs of exhaustion, and we've seen that work a couple of times already.
The market does tend to be very choppy but that's not that difficult to comprehend because it is an exotic pair and it is somewhat a function of an investment and less a function of a short-term rally or fade or drop that short-term traders would be involved in. All things being equal, this is a market that every time it rallies, I'll be looking for signs of weakness that I can jump on to start shorting again.