Top Story

USD/ZAR Forming Cup and Handle but Must Fill the Gap First!

The South African Rand gapped lower on Sunday evening as Moody’s maintained its investment grade rating for South Africa.  Many were expecting the credit agency to downgrade the rating, as the budget forecast for South Africa showed that the financials of the county were deteriorating.  However, although Moody’s did maintain the investment grade rating, they did cut the outlook from stable to negative.   

On a daily timeframe, it looks as if USD/ZAR could be forming a cup-and-handle formation dating back to August of 2018.  After the pair broke higher in February of 2018, it spiked higher to a high of 15.3861. The pair pulled back to near the 61.8% retracement level of that same timeframe to 13.3243 and began a rounding bottom formation (the cup) back towards the highs.  USD/ZAR retraced back to near the prior highs to 15.4939 and appears to be currently putting in the “handle” portion of the cup-and-handle formation.  The target for the cup-and-handle formation is the distance from top of the cup to the bottom, added to the breakout point from the handle.  In this case the target for USD/ZAR is near 17.4000.

Source: Tradingview, FOREX.com

On a 240-minute chart, we get clearer picture of the “handle”.  USD/ZAR began pulling back and trading in a downward sloping channel.  Before the initial pullback off the high, the pair put in a double top and reached the target near 14.5000 in mid-September.  Price has been range trading within the channel between 14.5000 and 15.4000 since then.  However, on Sunday, price gapped lower from 14.9858 down to 14.8886.  Currently, price appears to be trying to trade into the gap.   

Source: Tradingview, FOREX.com

First resistance comes in at the gap fill of 14.9856.  Above there, resistance is at the top of the downward sloping trendline near 15.2500.  Next resistance is at the “handle” highs near 15.4939.  First support is yesterday’s lows at 14.6761.  Below that is horizontal support from the lows on both September 13 and October 28th at 14.5108. 

Keep an eye on the gap!  That is the first step in fulfilling the cup-and-handle formation!


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.