1H2023 USD/ZAR (weekly timeframe)
Updated
Background (a quick look back): The rand's covid recovery, on the back of the Fed’s QE infinity policy and a strong commodities rally, ended in June 2021 after the rand managed to pull the pair to a low of 13.40. The rand got hit by a quick one-two in the middle of 2021 as the DXY found support around 90.00 and the local riots in July which saw the local unit tumble to 16.40 by November. This created the first major impulse wave.
The rand managed to pull the pair to a low of 14.40 in 1Q2022, but the party ended when the Fed started its current interest rate hiking cycle at the end of the quarter. Platinum prices also topped out at 11156/OZ in the beginning of March 2022. The hiking cycle, external geo-political, global recession, local energy uncertainties and a 28% decline in platinum prices (from March to September) pulled the pair into a 5-wave rip tide (orange channel) to a yearly high of 18.60.
The final quarter of 2022 saw the rand stage an ABC corrective pattern which allowed the local unit to pull the pair onto the 38.2% Fibo retracement rate of 16.86. The main factors which supported the rand’s recovery was the DXY which fell off its high of 114 in September and the price of platinum which bottomed at 8825/OZ in the same month. Platinum has since gained roughly 32% and closed on a high of 11088/OZ in the first week of January 2023.
Present (where to next): The rand managed to pull the pair onto the critical 61.8% Fibo retracement level of 16.80 from the covid recovery (green) in the first week of January 2023 after a stronger than expected non-farm payrolls report sent the DXY and US 10-year yields tumbling. The critical support range between 16.40 (top of impulse wave 1 and 50% orange Fibo retracement) and 16.80 will give an indication for the rand’s trajectory in 1H2023. The 50-week MA rate of also sits satisfyingly in this range at 16.47.
Support: A break below 16.80 will allow the rand to test the 50-week MA and the bottom of the support range at 16.40, the top of the major first wave. A break below the support range will invalidate the major 5-wave impulse wave which could see the pair fall between the orange 61.8% Fibo retracement rate of 15.88 and the 50% green retracement rate of 16.09. The best-case scenario for the local unit in my opinion is an appreciation onto the 200-week MA rate of 15.61 (this move does not seem highly likely now since the Fed is only expected to ease/pause its hiking cycle in the 2H2023).
Resistance: The first resistance rate which needs to give way for continued rand weakness sits at 17.30, the top of the orange third wave. A break above 17.30 will allow the pair to climb to the top of the corrective wave B at 17.96 and the psychological rate of 18.00. A close above 18.00 will confirm the fifth impulse wave to the covid high of 19.35.
Technical indicators: The weekly RSI is still trending upwards since hitting the oversold range in June 2021 and is current at a neutral level of 49.21 which is rand negative. The weekly MACD is currently holding a sell signal which is rand positive but the gap between the 12 and 26 EMA’s seems to be closing.
(SA is the world's leading platinum producer and the rand behaves like a commodity currency hence the emphasis on platinum price action in the description)
The rand managed to pull the pair to a low of 14.40 in 1Q2022, but the party ended when the Fed started its current interest rate hiking cycle at the end of the quarter. Platinum prices also topped out at 11156/OZ in the beginning of March 2022. The hiking cycle, external geo-political, global recession, local energy uncertainties and a 28% decline in platinum prices (from March to September) pulled the pair into a 5-wave rip tide (orange channel) to a yearly high of 18.60.
The final quarter of 2022 saw the rand stage an ABC corrective pattern which allowed the local unit to pull the pair onto the 38.2% Fibo retracement rate of 16.86. The main factors which supported the rand’s recovery was the DXY which fell off its high of 114 in September and the price of platinum which bottomed at 8825/OZ in the same month. Platinum has since gained roughly 32% and closed on a high of 11088/OZ in the first week of January 2023.
Present (where to next): The rand managed to pull the pair onto the critical 61.8% Fibo retracement level of 16.80 from the covid recovery (green) in the first week of January 2023 after a stronger than expected non-farm payrolls report sent the DXY and US 10-year yields tumbling. The critical support range between 16.40 (top of impulse wave 1 and 50% orange Fibo retracement) and 16.80 will give an indication for the rand’s trajectory in 1H2023. The 50-week MA rate of also sits satisfyingly in this range at 16.47.
Support: A break below 16.80 will allow the rand to test the 50-week MA and the bottom of the support range at 16.40, the top of the major first wave. A break below the support range will invalidate the major 5-wave impulse wave which could see the pair fall between the orange 61.8% Fibo retracement rate of 15.88 and the 50% green retracement rate of 16.09. The best-case scenario for the local unit in my opinion is an appreciation onto the 200-week MA rate of 15.61 (this move does not seem highly likely now since the Fed is only expected to ease/pause its hiking cycle in the 2H2023).
Resistance: The first resistance rate which needs to give way for continued rand weakness sits at 17.30, the top of the orange third wave. A break above 17.30 will allow the pair to climb to the top of the corrective wave B at 17.96 and the psychological rate of 18.00. A close above 18.00 will confirm the fifth impulse wave to the covid high of 19.35.
Technical indicators: The weekly RSI is still trending upwards since hitting the oversold range in June 2021 and is current at a neutral level of 49.21 which is rand negative. The weekly MACD is currently holding a sell signal which is rand positive but the gap between the 12 and 26 EMA’s seems to be closing.
(SA is the world's leading platinum producer and the rand behaves like a commodity currency hence the emphasis on platinum price action in the description)
Note
A failed break above 18.58 will invalidate the predicted 5th impulse wave.Note
The pair broke above the top of wave 3, 18.58. We are currently in the 5th impulse wave towards the 19.30'sNote
Just touched rates north of 19.00. The rand is folding rapidly. The 2020 peak at 19.34 seems inevitable. Will update the long-term timeframe idea at the end of the month when we enter 2H2023. Overall, very satisfied with how the idea played out but it's always distressing seeing my local currency depreciate. The depreciation of the rand's purchasing power over the past 20 years has been horrific.Note
Target reached, will update a fresh idea for the 2H2023
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