Trade Recommendation: GBP/ZAR

The British Pound/South African Rand pair (GBP/ZAR) launched its uptrend in August 2012 when it took out resistance of 13.00. This triggered the inverse head and shoulders reversal pattern on the weekly chart. The breakout attracted momentum traders and trend followers, which helped push the pair to as high as 25.15624 in January 2016. In three and a half years, the British Pound grew by over 93% against the South African Rand.

At this price level, the pair was already flashing bearish signals. A long bearish divergence can be spotted on the RSI indicating that a reversal was on the horizon. Also, the market generated a long shooting star candlestick on the weekly chart. It suggested the presence of sellers above 23.00.

Those who saw the writings on the wall dumped their positions. The selling pressure drove the pair down to 20.35984 in April 2016. While bottom pickers bought the dip, they could only inspire a rally to 23.34328 in May 2016. The lower high was the final nail in the coffin. From there, GBP/ZAR generated a series of lower highs and lower lows until it bottomed out at 15.45176 in March 2017.

The good news is that the market has been flashing signs of strength since. This could be your opportunity to enter at the early stages of a possible bull run.

Technical analysis show that the British Pound/South African Rand has created a bullish higher low setup at 16.0798 in February 2018. This came after the pair respected the 38.2% Fibonacci level and bounced to as high as 19.08475 in November 2017. While the pair retreated, it did not revisit 15 levels. This is a clear signal that bottom pickers are willing to enter the market at a higher price.

The strategy is to buy the bullish higher low as close to 16.20 as possible. As long as bulls preserve this support, they have all the momentum they need to ascend to our target of 19.00. Sell immediately as 19.00 is a firm resistance.

The process may take more than three months.

Weekly Chart of GBP/ZAR on OANDA

As of this writing, the British Pound/South African Rand pair is trading at 16.78133 on OANDA.

Summary of Strategy

Buy: Buy the higher low as close to 16.20 as possible.

Target: 19.00

Stop: 16.00

 

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.