In the emerging markets, South Africa is a luminary and one
of the leading economies in Africa. Factors affecting its performance is
therefore anchored at fundamental events related to China—one of the largest
project funders in Africa and without a doubt with strong ties to South Africa.
Even though the government bailing out Eskom for $1.6
billion is good news, ZAR came under renewed pressure last week,
closing lower against the green back thanks to Trump’s comments.
After failing to strike a deal with North Korea in Vietnam,
Trump said he was ready to walk out of the trade deal if China were not good
enough. Even so, his economic advisers remained optimistic insisting that progress
was good and an agreement may be struck.
Chinese representatives are ready to make structural changes
and are shelving ideas of retaliatory tariffs should an agreement failed to be
reached. So, all in all, despite the hard liners, both sides are ready to make
concessions. Sources privy to the discussion say the US will be ready to end their
$200 billion tariff only if China makes concession.
An analyst at Peregrine Treasury, Botes Bianca notes:
“When looking at the holistic picture, a potential positive outcome from the US/China trade talks could be the last “good news” for emerging markets for a while, as geopolitical tension, declining global GDP, and populism all threaten risk appetite”
Add this to Trump attacking the US Fed for their decision of
raising interest rates, their propensity of “liking a strong USD” and a
possible meeting between Trump and Xi Jin Ping, there are strong indications
that the ZAR and other high beta currencies will rally as risk appetite kick in
weakening the USD.
USD/ZAR Price Analysis
In light of the above development and the real possibility
of an agreement, we are net bullish on the ZAR. Encouragingly, our position is
backed by a combination of ZAR favorable candlestick arrangement as well as bullish
A look at the chart indicates that ZAR bulls may take over.
Note that prices are actually retesting the main resistance trend line and even
though USD bulls pushed prices above the 14.10 level, the only way for buyers
to be in control if price rally above 14.35 complete with high trade volumes
above 410k registered on Feb 21.
That will align well with price action realignment of Feb 21
as bulls of Jul 2018 flow in a trend resumption phase. On the reverse side, a desirable
and a probable harmonious trend for the ZAR is if prices reject higher highs
and reverse Friday losses and push lower for 13.80. The level is significant in
our analysis and as long as prices trend above this mark, USD bulls are in
Like in our last USD/ZAR price analysis,
we said that 13.80 is our sell trigger and ideally, if volumes accompanying this
new found trend are high above recent averages of 220k and more important
exceed 410k of Feb 21, it is likely that ZAR bulls will drive prices to 13.20
and later 13.
This week’s USD/ZAR trading plan will be as follows. We are
ready for both options:
A bearish scenario
Sell Stop: 13.80
In case bulls takeover;
First Target: 14.60, 15.70
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