Rand to feel the carry trade squeeze
Updated
The rand held up well despite the spike in volatility over the past two week however the macroeconomic back drop does not bode well for our local unit. The carry trade is unwinding forcing investors to close their Yen shorts which is the cause of the massive spike in volatility.
The Nikkei is down 8% while the USDJPY has already dropped another 2% in early morning trade, this is not normal behavior. The rand is a risk-on asset and market sentiment is aggressively swinging to risk-off sentiment which is rand negative.
The support at 18.12 is holding its ground and if the rand fails to pull the pair below this rate it will signal that the rand post-election rand strength has petered out. The pair is currently testing the resistance rate at 18.37 and a break above this level will see the pair break the downward channel to climb and test the 200-day MA at 18.62. If the current stress from the unwinding of the carry trade persists and we see a continued sell-off in risk assets the rand will soon find itself testing the downward trend line around the psychological 19.00 mark with a move towards 19.35 firmly on the cards.
The Nikkei is down 8% while the USDJPY has already dropped another 2% in early morning trade, this is not normal behavior. The rand is a risk-on asset and market sentiment is aggressively swinging to risk-off sentiment which is rand negative.
The support at 18.12 is holding its ground and if the rand fails to pull the pair below this rate it will signal that the rand post-election rand strength has petered out. The pair is currently testing the resistance rate at 18.37 and a break above this level will see the pair break the downward channel to climb and test the 200-day MA at 18.62. If the current stress from the unwinding of the carry trade persists and we see a continued sell-off in risk assets the rand will soon find itself testing the downward trend line around the psychological 19.00 mark with a move towards 19.35 firmly on the cards.
Note
200-day MA is being testedNote
The rand managed to pull the pair back into the downward channel after the pair failed to break above the 200-day MA.
We need a confirmed break out of the channel. A break below the 50-day MA at 18.31 will invalidate the idea
Note
Idea has been invalidated
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