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Jason Sen

USD/ZAR sinks to important longer-term support on the weekly chart


It is not easy to find decent trading opportunities in this low-volatility environment. These are difficult days for both day and swing traders with some forex pairs confined to 50 or 60-pip ranges on a daily basis. It doesn’t help when many markets are trending sideways, and I’m finding it hard to find a decent trend to jump on and run a trade for more than 48 hours.

However, after trawling through my charts I may have found an opportunity worthy of a small gamble for this week. The USD/ZAR experienced a very strong bull market run from early-2011 up to the beginning of this year. The almost five-year bull run took the pair from 6.59 up to a peak in January 2016 at 17.82.

Since that January peak the pair has seen a steady correction throughout the year to a low point of 13.19. This represents a 38.2% correction, the exact Fibonacci support level being at 13.5329. The 38.2% Fibonacci level is always worth paying attention to on the longer-term chart, but we have two other very important factors around this level, which makes this an interesting opportunity.

The USD/ZAR weekly chart above shows the bounce that this currency pair experienced from that low in August 2016 up to 14.7505. Now, the market has turned lower again to re-test the important 38.2% Fibonacci support, but you can also see the blue 100-week moving average intersecting at exactly the same level.

Just to reinforce the importance of the area we are approaching, a three-and-a-half-year rising trendline is coming in at 13.39 this week. So the whole 13.53/13.39 area is a very important support level for the three reasons mentioned above.

If we now zoom into the chart to look at the data over the past year, you can see how recently that three-and-a-half-year trendline has acted absolutely perfectly as support. Don’t forget we are in a longer-term bull trend and, at this stage, the move lower this year is simply a correction in that bull trend.

Experienced traders know that the trend is your friend and buying into strong support areas is a successful strategy over time. This is a relatively low-risk strategy as a stop placed below the August low of 13.1900 means there is little downside, but obviously if the bull trend does resume from here there is a big potential to the upside. Initially we will be looking for a test of last week’s high at 14.2588 and then the previous peak of 14.7505, which is also the high for September.

This coincides quite nicely with the upper trendline which, as you can see in the chart, goes back to meet January of this year. This will be the major challenge for bulls and it is only on a break above this trendline, with a weekly close for confirmation, that we can start to look for a full resumption of that longer-term bull trend.

Jason Sen
Technical Analyst & Trader

For more information, trading education and offers visit InterTrader

The content of this article is the personal opinion of the author and not InterTrader. The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest. Nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.

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