US Dollar Climbs Above 15 Rand
- 50-day EMA holds
- Major “risk off” move
The US dollar has rallied significantly against the South African rand during trading on Wednesday, breaking above the 15 rand level. This is a large, round, psychologically significant number that will obviously attract a lot of attention and, perhaps more importantly, order flow at this point. Beyond that, the market has recently tested the 61.8% Fibonacci retracement level and the area just above the 200-day EMA. Both of these are reasons to think that perhaps the market could continue to go higher.
Break of major level
Any time a currency pair breaks a large candle like 15, it will attract a certain amount of order flow by larger institutions. By doing so, it does signal, quite like a roadmap, where the market could be going next. Barring any type of major news event, this typically means that the pair will continue in whichever direction it broke the level. In other words, if it crosses to the upside like it has in this pair, that is typically bullish and means that the market is going to go higher. However, it works in the exact opposite direction as well.
The fact that the candlestick has not only broken above the major level, but also formed long wicks from the past couple of trading sessions is a very bullish sign. Because of that, and the previous action in the currency pair, it makes sense that this market will probably go looking towards the highs again. Fibonacci retracement studies dictate that we could probably go back to the 0.0% Fibonacci retracement level in a round trip.
The South African rand is an emerging market currency and could be thought of as a bit of a risk barometer. As the pair rallies, it suggests that money is flowing away from the emerging market arena and into the safety of the United States, perhaps even to the US Treasury markets. Because of this, the South African rand is a currency that traders pay attention to, as it is highly driven by the idea of looking for higher yield.
To the downside, if this market were to fall, it would show us that the global economy is reaching for yield and perhaps “risk”. Ultimately, this is a market that will continue to be very noisy, but this is a sign of the times as we have plenty of headlines out there to drive the market back and forth. In a twist of irony, part of what has sent this market higher is the possible impeachment of Donald Trump, driving money into the US dollar even though the problem started in the United States. That being said, emerging markets continue to suffer at the hands of the global slowdown, so rallying at this point makes sense. If the market was to turn around and break down below the 50-day EMA, the argument would be a different one.