Rand consolidation warns of weakness to follow
The USD/ZAR has moved into a consolidation phase, following the rally we saw this year, from January through to April.
Triangle suggests trend continuation
The USD/ZAR has moved into a consolidation phase following the rally we saw this year from January through to April. The dotted lines show the shape of this sideways consolidation to be that of a triangle. A triangle pattern (highlighted with the dotted lines) is considered a continuation pattern in technical analysis terms. A continuation pattern would suggest that the trend which preceded the consolidation is likely to resume. In this case that trend is up (dollar strength/rand weakness).
Waiting for the breakout
However, before committing to a continued uptrend for the USD/ZAR, it is prudent to wait for a breakout to confirm. For an upside breakout to confirm, a close above the dotted trend line (triangle) resistance is needed.
Traders might prefer to use the resistance high of 19.30 as a breakout level instead due to its close proximity. A break of the 19.30 level would target a move to a new high at 20.80. This target is a projection of the height of the consolidation (1.50) from the breakout point.
Cautious range trade
For now the USD/ZAR looks to have reversed off the lower level of triangle support. Range traders might consider this a buying opportunity targeting a move towards the resistance of the triangle consolidation at 18.95, using a close below the 18.15 level as a stop loss consideration.
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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