$zar

[bgold]

On Friday, $ZAR weakened from 6.85 to 6.95 on back of $ strength and gold weakness. I would have expected that ZAR would have weakened substantially more. I expected follow tru on Monday. Hasn't happened (yet). What am I missing??
My guess was that funds did not want to short ZAR before weekend as this implies extra risk and 2 dyas wasted high carry costs - interest spread)

SA mines like Durban Roodep, Goldfields and AngloG were all down about 5% which is only marginally worse than the North american stocks. Considering SA mines leverage (eg high costs or low contribution margin at current $ZAR rate) one would expect them to tumble more.

In conclusion, something has to go, either
1. $ZAR to go up! Do I have the balls to buy? ,
2. AU, GFI and DROOY will collapse, or
3. Goldprice recovers.

The $ZAR chart seems to point to a reversal. Arguably a bullish emgulfing pattern with non-confirmation on daily chart and a striking Non-confirmation on weekly chart.

Trade idea:
BUY $ZAR at spot 6.98. target: up to 8.30/9.25 and a Stop at 6.80 (eg risking 3% incl slippage for a potential profit of 16-25%).

Short ZAR: 6,972.5
Long : $1,000 BID ASK P&L

$1,003 6.95 6.9725 -$3 Bid-Ask dealing $1,025 6.80 -$25 Stop
$917 7.60 $83 Target 1
$845 8.25 $155 Target 2
$754 9.25 $246 Target 3

Part of the above risk is $ weakness which can cheaply be hedged via BUY of EUR$. But $ weakness would also result in a possibly stronger goldprice(?) However, Fridays' gold "collapse" will have caused enough trauma that I expect any gold recovery to take a little longer, even if $ were to weaken.

 

[bgold]

$ZAR weekly chart

Please also find below the weekly $ZAR chart.

 

[warm_machine]

zar offers a high yield so despite what the experts say about the recovering stockmarket, investors are still chasing high yielding currencies...eventually this one could get down to 6.00 imo

 

[bgold]

It seems to me that the ZAR's main risk is South African politics. Too much stengthening will put policymakers on the warpath, and they've got plenty of room to maneuver with a 10.5% short interest rate.

Much might depend on gold. For now there seems no reason not to remain bullish on gold. The recent drop was a hiccup caused by a surprise in US data and too many people were caught on the same side of the trade with the same stop levels. We may be surprised at how quickly it recovers. Long term if you are bullish on commodities, the Rand is your vehicle of investment. You are not alone with your forecast of 6! And one gets paid an annualised 8% return for the pleasure.

Nevermind that I read trade research of one of the big FX houses that they have a short $ZAR trade in their sample portfolio, I am still not convinced. Not "brave/crazy" enough either to go against the trend!!

 

[warm_machine]

While dollar is devaluation mode it is no time to bottom pick...that fact that the S.a. government hinders withdrawal means that when the time comes there will be a nasty snap back as players head for the door at the same time...however, this time is not now and might not be in the near future either, so as indicated yourself, using the pair as a carry trade is the way to go, as the trend is still clearly down.

 

[bgold]

As you point out USD weakness drives $ZAR down. Trading USD weakness is more cost efficient and easier via €$ or JPY$. I think (fear) we are in full agreement on state of play.

Still interesting to see the €ZAR cross (see chart). €ZAR sharply rallied in May but gave back all gains between June -SEP, matching May lows of 7.78. It snapped back in 4 days and by Friday morning it had given back 75% of gains. With €ZAR at 8.03, it is still up about 0.10 vs 7.93 lows

See also how RSI showed Pos Divergence at Sep bottom. Other momentum indicators like CCI are possibly also early signs.

I am staying out ZAR, nevermind the yield pick-up