This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
The USD/ZAR currency pair broke below the R14.55/$ mark and traded directly to the R14/$ target suggested in our previous note (below). The long term trend for the pair remains up, with the short term move down serving as the first pullback from a near term price high. This pullback is highlighted with the parallel blue lines and resembles a bullish flag formation (in Technical Analysis terms). The bullish flag formation is suggestive of a weak move down after an aggressive move up, alluding to the underlying momentum as remaining positive. These patterns are considered bullish continuation patterns as they have a habit of occurring before the preceding uptrend is continued.
With this in mind, traders of the pattern might look for a close above the upper resistance line at around R14.30/$ for long entry. Should this breakout scenario occur, R15/$ would be the initial upside target favoured, a break of which would further consider R15.70/$ as the next upside target. A close below trend line support at R13.75/$ would consider the failure of the bullish indications.
Aggressive traders might look for long entry into the USD/ZAR currency pair at current levels (R14.15/$), instead of waiting for the breakout scenario, although waiting for the breakout remains our preferred confirmation for the trade.