I do believe that not only does the currency market continue to reflect the softness of emerging markets, but you will probably see much of the same in their equity markets as well.
The US dollar broke through significant resistance near the 16.40 level. Ultimately, this is a market that continues to see a lot of upward pressure, as we have seen a lot of negativity in emerging markets. Now that we have broken out above there, it’s likely that we go looking to the 16.60 level. After that, the 17 level will be targeted.
The South African rand is getting absolutely slammed as a lot of risk appetite has been destroyed. Keep in mind that the South African rand is highly levered to the commodity markets, so that is worth keeping in the back of your mind as well. The South African rand focuses a lot on the development of Africa and hard assets such as gold and diamonds. As long as there is a strengthening US dollar out there, it will have a major negative correlation to what the South African rand can do. Short-term pullbacks are possible, but I think those will more likely than not be buying opportunities for the longer term.
The size of the candlestick is rather bullish, and I think that only adds more fuel to the fire for buyers. In fact, the 50-day EMA at the 15.80 level is also supported, so I think there’s no real reason to suspect that we are going to change attitudes anytime soon. As long as we stay above the 50-day EMA, the market is likely to find plenty of people that are willing to come in and pick up “cheap US dollars.”
The Federal Reserve continues to tighten quite drastically, and that will continue to put a lot of pressure on other currencies around the world, as we continue to see a lot of strength in the greenback which causes major problems in emerging markets, as most of the debt that these countries have is priced in USD. Because of this, I do believe that not only does the currency market continue to reflect the softness of emerging markets, but you will probably see much of the same in their equity markets as well. Because of this, I continue to buy dips and take advantage of the longer-term trend. If we were to break down below the 50-day EMA, the market will probably “reset” near the 15.20 area.
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