USDZAR: When you’re just trading the Dollar

The Rand is not a market I trade at all, but I thought I would comment on it today because it is doing something interesting, and I think it is worth taking note.

Have a look at these three charts:

I call this pattern the down-stuck. Because price went down, and now it is stuck.

You can run correlation equations to determine if these instruments are correlated, or you can use your common sense and look at them.

It is hard to argue that these markets are moving independently because they just aren’t. So what, you might be asking.

Here they are again, labelled:

The EURUSD is a significant component of the Dollar index, so we would expect the two charts to look reasonably similar. However, the Rand is not a component of the index, but we see the same longer-term pattern.
Why? The answer is straightforward: It is all about the mighty Greenback, and what comes next for the USD. Practically, it also means that if you go long on the Dollar Index, long on USDZAR and short EURUSD, you are not taking three trades – you are taking one trade, three times.

Where is big money positioned?

A quick look at the Commitment of Traders report for the USD reveals that the most significant trading institutions in the world cannot find consensus on where price is going:

Large speculators and commercials (who usually are at odds with each other) seem to have called a truce – both sides of the camp are mostly flat. The implication could not be more evident – big money is playing a wait and see game right now.

So, where to for the Rand?

It seems like a better question is where to for the Dollar.

Until price manages to get out of its ping-pong range between 90.60 and 88.40, the future of the greenback is anyone’s guess.

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