The market is likely to continue to see upward pressure eventually, but in the short term it looks like we are going to continue to see a little bit of a correction in the greenback, which in all fairness is probably overdue.
The 50-Day EMA continues to be a technical indicator that a lot of people will pay attention to, and it does look like we are trying to get down there to test it. The 17.50 Rand area could offer a little bit of support, followed by the 17 Rand level. Keep in mind that the United States dollar has been like a wrecking ball against emerging market economies, and South Africa won’t be any different. The market has been rallying for ages, so taking a bit of a pause does make a lot of sense. All you must do is look at the US Dollar Index to see just how overdone everything is.
On the other hand, if we do rally from here we could end up back in the consolidation area with 18.50 Rand being your short-term ceiling. Breaking above that then allows this market to continue going higher. I look at any pullback at this point as the equivalent of finding cheap US dollars, which is something that I am more than willing to do. You also must keep in mind that this market had rallied quite a bit during the week, so it’s possible that the move was exacerbated a bit by profit-taking, and of course, the fact that liquidity may have been a bit then during the day on Friday, especially in the afternoon when we really started to see the US dollar loses strength.
After all, at that point it’s basically just American traders trying to close out their books for the week. That’s not to say that the selloff wasn’t real, just that it may have gotten a little bit more mileage than it would on say, a Tuesday or something like that. Nonetheless, I’ll be looking for some type of supportive candle to get involved in.
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