COMMENT-South African rand's gains needs an adjustment

The speed and magnitude of the rand's appreciation, a 5.5% gain since April 19, argues for an adjustment higher in USD/ZAR.

Back-to-back gains May 7-8, helped ease some of the oversold condition. However, a long upper candlestick shadow on May 8 suggested the correction was fading and that there was room for fresh ZAR gains.

USD/ZAR based at 18.30 Monday and the dollar carved out a small recovery to 18.3650 into the close. The squeeze higher extended into Tuesday and a high of 18.4800 achieved. A pullback to 18.4125 suggests the rand is still sucking in flows and that any rebound could be offering value to those looking for further ZAR gains.

The market still looks overextended technically, USD/ZAR's bear run needs a further correction to keep the trend healthy.

Political uncertainty ahead of the May 29 South African election and the shifting sands of U.S. monetary policy could add weight to any USD/ZAR rebound.

A climb back to the 18.6750 highs from May 8 could reduce the heat in the USD/ZAR bear market and free up room for a bearish resumption back to 18.30.