Big Move in USD/ZAR Imminent?

The US dollar and South African Rand (USD/ZAR) has been an extremely volatile pair over the past month. That volatility may be set to spike even higher, as the pair is nearing a key inflection point.

The USD/ZAR has been in a long term uptrend since hitting a 12-month low of 6.6216 on July 29th. The pair quickly climbed from that point to a 52-week high of 8.4763 (September 22nd), but has been struggling to find momentum since. That lack of recent momentum, combined with the long term ascending trendline has formed a large triangle pattern, which is now coming to a head. As the six month daily chart below shows, the USD/ZAR has been consolidating in a tighter and tighter range over the past few weeks, indicating that bulls and bears are digging deeper into their positions. A break of the pattern (in either direction) will likely lead to a large move as the losing side abandons the trade and more buyers/sellers enter the market. Which way the pair will breakout remains unclear at this point, as both the support and resistance lines have held strong thus far; despite numerous tests. The USD/ZAR is currently trading at 7.90 - resting almost directly in the middle of the pair's support and resistance levels.

The upper triangle resistance line is currently located around 8.08. If he pair can break above this line, which has served as resistance on three occasions since the beginning of October, look for a quick run at the 52-week high of 8.4763, and possibly the $9 level shortly thereafter.

The lower triangle support line is currently located around 7.75. If the pair breaks below this line, there is relatively little support until 7.27 – 6.9% lower than the current trading price. Beyond that, no support comes into play until 6.96.

The 14 day Average True Range [ATR] currently stands at 0.16209 – or 1602.9 pips per day. At its September climax, ATR surged to 0.4690. A triangle breakout/breakdown could push volatility towards that level again.

The USD/ZAR is volatile, but also usually has a spread in excess of 50 pips. For this reason, some traders may prefer an ETF when taking a position in the South African Rand. If the USD/ZAR moves higher, look for the Wisdom Tree South African Rand ETF

to move lower. If the USD/ZAR moves lower, look for the South African Rand ETF

to move higher.