Trade Recommendation: USD/ZAR
- The USD/ZAR pair rose steadily from 2012 to mid-2015, supported by a well-defined trendline (violet trendline in Figure 1).
- During the second half of 2015, USD/ZAR moved sharply higher, topping at 17.80 in January 2016. During the subsequent decline, the pair moved below its long-term support.
- In 2017, while USD/ZAR moved higher, the long-term support (now resistance) halted the pair’s advance on two occasions (last two violet arrows).
Figure 1. USDZAR Weekly Chart
- Zooming in, since April 2018, USD/ZAR has risen from 11.60 to nearly 13, bouncing off a short-term support during each pullback (green trendline in Figure 2).
- The three peaks in May (white ellipses) formed a tentative H&S pattern (neckline – white upward-sloping trendline). The neckline was never broken and the pair is now moving past the top of the pattern.
Figure 2. USDZAR Daily Chart
- Using the alternative interpretation of the H&S pattern, we obtain an upside target of 13.48 (white vertical line in Figure 2).
- Advances in the short-term are expected to halt at a support-turned-resistance trendline (orange trendline, currently at 13.49). The trendline is sitting just above the target obtained from the H&S pattern.
- Bullish above the green trendline.
- Neutral below the green trendline but above 12.12 (lower bright blue horizontal trendline).
- Buy USD/ZAR in the 12.90 – 13 range (12.98 at 1:20 pm EST on June 7).
- Target: 13.45 (just below the target from the alternative interpretation of the H&S pattern).
- Stop: 12.49 (below the green support, the neckline, and the prior minor low).
Featured image courtesy of Shutterstock.