If anything, a straight, firm path towards increased USD and CNY volatility is a deal before the March 1 deadline. Good news is that the rather controversial—depending on your political or policy leaning—Trump tweeted that talks were “productive.”
Negotiations are thick and the US appears to be digging in on how China have been forcing US companies to forcefully transfer technology as well as address cases of what has been termed as severe cyber-attacks and theft.
Now, the hitch here is the lack of an enforcement mechanism and Washington on their part wants a strong mechanism that will see these trade commitments followed through by Beijing to completion. Trump has made it clear that he doesn’t want memorandum of understandings (MoUs) which China wants as they are short term.
All the same, there seems to be agreement that the Chinese Yuan is undervalued and this gives it a competitive edge over other market valued currencies. Meanwhile, China insists on a fair and objective process towards implementation of these agreements. Either way, if a deal fails to materialize by the end of the month, there is a chance that the deadline will be postponed and that will in turn means the US postponing their increased tariffs of $200 billion worth of Chinese imports into the world’s largest economy.
In other news, news of Eskom bailout is boosting the Rand. The currency added 2.3 percent on Friday in reaction to the 69 billion Rand bailout news and the extension of the country’s account deficit to 4.5 percent by 2020. This is good news for the Rand and as we anxiously wait for Moody’s assessment of South Africa’s credit rating, any cut could see the Rand sink more than 10 percent as its government bonds are expunged from the World Government Bond Index.
Technical Analysis – USD/ZAR
In a top-down approach, it is clear that USDZAR prices are consolidating in higher time-frames as ZAR bulls struggle to close below Aug 2018 lows. The bar anchors our analysis and as long as ZAR bulls are contained in this bar’s high low, then it is likely that USD bulls—in an effort versus result analysis– will press higher in a trend continuation move nullifying our bearish outlook.
However, in a case where sellers out-muscle bulls, then all we need to see are strong liquidation and a break below 13.20 at the back of strong volumes exceeding 5.42 million of Aug 2018. It is highly likely that will be the case as daily price action hints of. Note that none of our previous USD/ZAR trade conditions were met as sellers took charge at the point of confluence.
While we may trade in the direction of Feb 20 inverted bear bar, a sober and a more conservative approach will be to wait for a conclusive close below Feb 13 bull bar at 13.70. Ideally, this breakout will print a three-bar bear reversal pattern more so if accompanying volumes are above average exceeding 490k. Should that be the case, then our USDZAR trade plan will be as follows:
Sell Stop: 13.70
All charts courtesy of Trading View.
This is not Investment Advice. Do your Research.
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