From the Desk of Ian Culley @IanCulley
Trendless price action remains the way right now for currency markets.
Yes, some of our bearish dollar trades have triggered and are trending. But most have not.
It doesn’t mean they won’t, of course. But it would be irresponsible not to consider potential outcomes that conflict with my bearish USD thesis…
If the dollar rips, what USD dollar pair would I use to express a bullish outlook?
The answer: the South African rand.
Check out the weekly chart of the USD/ZAR pair:
The dollar has been in a strong uptrend versus the rand for more than a decade. It’s been one base breakout after another, leading to the USD/ZAR challenging its all-time highs last month.
Those former highs coincide with a key extension level. This a logical level to witness price digest its recent rally. And it has!
Here’s a potential six-month base forming on the daily chart:
Some chartists may see a possible cup-and-handle.
In the case of the USD/ZAR, bulls attempted to drive price to new all-time highs but ran into an overwhelming amount of overhead supply. Instead of throwing in the towel, buyers continued to support higher prices while forming the possible “handle” of the pattern just below the October 2022 high.
The higher low of the handle reveals a doggedness among buyers that adds a bullish interpretation to the pattern and begs the question….
Will the USD/ZAR resolve higher in the direction of the underlying trend?
I don’t want to make that bet until a daily close above 18.65. Even then, I wouldn’t give the trade much room. Remember, I’m bearish the US dollar.
Nevertheless, a decisive breakout indicates the path of least resistance is higher toward 19.75.
I don’t know what the future holds. Honestly, it wouldn’t be any fun if I did.
If I’m wrong about a falling dollar and it turns higher, the USD/ZAR pair is an excellent vehicle for flipping the book and changing course.
Stay tuned!
Thanks for reading.
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