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USD/ZAR technicals & trade setup

FX:USDZAR   U.S. Dollar/South African Rand
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In this write-up, we’ve emphasized more on long-term prospects of USDZAR             without disregarding short term trend as well.

The pair began spiking again after the formation of hammer pattern candle at 13.3505 levels (see bullish candles with big real bodies on daily candles). We look at these price gains as short covering rallies rather than a change in the direction of the trend.

Both leading indicators are positively converging to the ongoing rallies, RSI trending above 44 levels indicates strength in buying interests, while slow stochastic is also shown a %K crossover above oversold territory which signals the intensified bullish momentum .

We could see the resultant effects of these indications in the current prices of this pair that has bounced above 7DMA.

However, on the contrary, 2016 hasn’t been favourable for USD against ZAR             so far, the major trend of this pair seems weaker ever since it has rejected the resistances of 15.8679 levels.

Since then, the bears kept capitalizing on rallies to evidence slumps more than 14.25%.

Subsequently, the current prices have slid below EMAs soon after breaking below 15.0948 levels (i.e.23.6% Fibonacci levels) and for now heading towards 38.2% Fibos.

We believe that there is space for the ZAR’s undervaluation to correct further and that USDZAR             will maintain its recent downward momentum . Part of this comes down to the benign external dynamics – lower developed market rates for longer and subdued FX volatility.

At spot ref: USDZAR             currently trading at 13.6100, we recommend staying shorts in USDZAR             mid-month futures on hedging grounds in medium term perspectives, targeting a 7.5% move lower to 12.4912. We place a stop-loss 3% higher than current levels at 13.9091. Our trade horizon is 6 months. The position generates positive carry of about +60bp / month.

Alternatively, short-term speculators can also bet in ATM calls for maximum targets up to 13.7310 levels, thereby, please be noted that the maximum risk associated with this trade would be to the extent of premiums paid to the option writer.
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