The rand was the weakest of all emerging market currencies last year, and this year it has continued from where it left off. The outlook still does not look good, as shown on the chart.
Recommendation: Sell short on rand pullbacks
Trend: Rand weakness on all main timeframes.
- Last month the rand broke out above line 3 resistance, and before that it broke out above long-term dollar resistance (line 4). The latter occurrence is extremely bearish in the long term.
- In the shorter term, there is a higher dollar target (weaker rand) based on a recent break-out of a broadening formation formed by lines 2 and 3. The minimum target is R11.52, and there is further potential to R11.87, based on pattern 2-3.
- Its short-term relative strength index (on top) is overbought for the dollar, so a temporary rand rally can occur at any time. Use any strength (rally) in the rand to sell short again (ideally at the R11 level or better).
- There is dollar support at lines 3 and 5 (R10.80).
- The initial stop-loss when shorting on a pullback will be a close below line 5 (that is, below R10.70). Traders take at least half profits near R11.50.
Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author, or attend his courses, please go to www.themarket.co.za.