USD/ZAR: Reaction Higher Being Tested as Sentiment Winds Stir

Early trading this week in the USD/ZAR has delivered a reversal higher and now retail traders wagering will have to decide how much they believe additional shifts in the marketplace will occur. The USD/ZAR has correlated to broad Forex and early trading this morning has kept values below highs seen last Friday, but sustained ratios will create short and near-term anxiety in financial institutions and speculators alike. Recent trading in the USD/ZAR has offered plenty of velocity which is both attractive to traders and a warning sign.

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Fed Uncertainty and Inflation Risks Drive USD/ZAR

A lack of clarity is prevailing in the broad Forex market and USD/ZAR, this as financial institutions are nervously trying to decipher their outlooks regarding the U.S Federal Reserve. There is also the additional continuous fear that the Middle East situation is not showing any signs of getting resolved. The reason why the nervousness regarding the Iran and U.S situation needs to be mentioned is because of the constant threat of sticky inflation which reflects directly on the U.S Federal Reserve’s ability to manage its interest rate policy. The USD/ZAR is being effected by USD centric momentum. While the currency pair certainly hit lows in the middle of last week, the reaction higher on Friday and sustained values flirting with higher ratios is creating a challenging situation for USD/ZAR traders as they concern themselves with the Fed and worries about inflation – including higher fuel costs in South Africa.

EURUSD Chart by TradingView

USD/ZAR Near-Term Outlook Ahead of the Fed Decision

The USD/ZAR is trading near the 16.15600 ratio as of this writing which remains slightly below Monday’s highs which moved towards the 16.18800 vicinity momentarily. The spread on the USD/ZAR remains wide and the broad Forex market also remains within a fragile state as folks try to weigh their short and near-term speculative perceptions against what will happen on the 16th of September when the U.S Fed announces their interest rate decision.

While Kevin Warsh has spoken about his inflation concerns he has also expressed the U.S economy is strong. Higher interest rates in the U.S will mean a higher cost for repaying U.S Treasury debt, something the U.S doesn’t want to happen. Thus, some analysts still believe the Fed will not raise rates in the middle of this month. Meaning short term nervousness about higher interest rates may find resistance from those who think the USD/ZAR has been overbought the past couple of days.

Can Calmer Markets Trigger a USD/ZAR Pullback?

Choppiness should be expected in the USD/ZAR by day traders over the next handful of days. Traders also need to remember that next Monday is a U.S holiday, which means a long holiday weekend is being looked at by financial institutions and trading might start getting influenced on Thursday and certainly into Friday of this week. U.S banks will be closed next Monday.

Nervous global markets remain a talking point, and the USD/ZAR while still trading in the lower part of its price ratios via a long-term perspective should be treated as consistently showing an ability to correlate. Thus, if financial institutions today and tomorrow start to show more calm in the wake of last Friday’s cautious speech from the Fed Chairman, USD centric weakness may again begin to be seen. The USD/ZAR could move lower if it is considered temporarily overbought if large players believe calm will return.

USD/ZAR Price Chart

H2; USD/ZAR Sentiment Battle May Drive Near-Term Volatility

After dropping to lows of nearly 15.89000 in the middle of last week and showing the potential of flirting with values last seen in February of this year, the USD/ZAR has bounced slightly higher. But intriguingly the upwards momentum does not appear to have occurred because financial institutions thought the currency pair was oversold, instead it appears that broad Forex market sentiment got nervous because of uncertainty being heard from the U.S Federal Reserve. Meaning some financial institutions may battle for lower USD/ZAR rates and cause a wave of choppiness in the coming days which could equate into additional price velocity being seen as a sentiment fight brews.

USD/ZAR Trading Risks: Wide Spreads and Volatile Sentiment

Technical traders need to use solid risk management in the coming days. Thoughts of an overbought USD/ZAR colliding with existing broad market sentiment which is fragile may create a whirlwind and the need for solid risk taking tactics including entry orders. While the allure of lower USD/ZAR movement is logical, betting against prevailing sentiment which appears cautious – and even nervous – in the short and near-term could prove difficult for traders that are not prepared. Beware of wide spreads in the USD/ZAR.

USD/ZAR Short Term Outlook:

Current Resistance: 16.18800

Current Support: 16.15300

High Target: 16.22500

Low Target: 16.10600

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