The South African Rand has been strong against the USD since the end of 2008. The decline flattened from mid-2009 to mid-2010 leading to another dip in the second half of 2010. The market again appears to have flattened at the start of 2011 to now. Let’s take a look at the structure to evaluate where we are in the current consolidation.

USD/ZAR
Short-term
- Looking at the 1H and 4H charts below, we see that the USD/ZAR ended Friday with a reversal signal in the short-term.
- A 5-wave sequence can be spotted in these intra day time-frames and a bearish divergence with the 14-period RSI in the 1H chart.
- The 1H RSI reading is also dropping below 40, a sign of lost bullish momentum.
- The retracement can be expected to extend towards 0.6730, or perhaps even 0.67 near the 61.8% retracement level.
- The 4H chart shows that the 5-wave sequence was an impulse wave, but possibly just the first leg of a larger a-b-c corrective sequence.
- The very short-term bearish outlook is further suggested by the engulfing pattern seen in the 4H chart as well as the daily chart below.

Medium Term:
-The daily chart shows a possible start of a bearish impulse wave after completion of an ABCDE 5-wave corrective sequence, which turned out to be an expanding flat.
- Friday’s price action completed an engulfing pattern, so the short-term bearish outlook is suggested, but another wave up to complete a 3-wave correction could be anticipated. However, a break below 0.6670 would make it more likely that a bearish continuation is already at hand.
- This bearish impulse wave scenario is confirmed if the market can push price below the spike at 6.5783 we saw leading to last week’s rally. The RSI breaking back below 40 would also be a good sign for the bearish outlook, but only a break below 30 offers bearish momentum signal.
- The weekly chart offers an alternate count. Often corrections extend further than initial counts offer. Therefore, if the market is still in an ABCDE expanded flat pattern, a break above 61.8% retracement seen in the daily chart, and above 0.70 level should be a clue to that development.
- A break above 0.70 has the prospect of extending to 0.74. The bearish outlook is limited to 0.64.
- However, if the bearish attempt in 2011 can match that of 2010, the market can extend the decline towards 0.5770.

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Fan Yang CMT
Chief Technical Strategist
FXTimes

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.