USD/ZAR is breaking higher today and is pushing outside of the trend channel formed from the beginning of January 2016.
From a technical perspective, USD/ZAR prices retraced 38.2% of the 2011-2015 up trend. This is a common retracement level of long and strong trends and suggests that more strength is on the horizon.
Additionally, prices formed a black price channel from January 2016 to August 2016. This trend lower starting in January formed in 3 waves. Three wave moves in Elliott wave terms typically represent a correction and suggest prices may eventually retrace the whole move higher. We can use a break of the resistance line as a signal to enter long. Prices are breaking higher outside of this channel as we write.
Chart by J. Wagner
If the breakout proves formidable, then we may see a retest of the 17.50 high. A move above the 200 day simple moving average (blue line) will provide further confirmation of a potential move towards 17.50.
Keep in mind that being long USDZAR means you will be paying rollover daily due to the wide interest rate differentials. Since the size of the potential move higher is rather large, the nominal roll charge can be swallowed up. However, if USDZAR turns sideways or lower, then the roll charges can eat into the trade making it even more costly to hold the position overnight.
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---Written by Jeremy Wagner, Head Trading Instructor, DailyFX EDU
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