EM rundown USD ZAR and USD RUB test high amidst panicked markets

Traders are still reeling after this morning’s shocking “flash crash.” Liquidity completely dried up at the opening of the North American trading session, with the Dow Jones Industrial Average falling over 1,000 points from Friday’s close, EUR/USD surging to above 1.1700, and USD/JPY collapsing nearly 350 pips in a 15-minute period alone. Not surprisingly, skittish traders also took the opportunity to sell “risky” emerging market currencies en masse. Currencies that are exposed to China, where the initial spark of fear emerged last week, have been particularly hard hit.

USD/ZAR: All-time high in sight, but potential for a pullback first

As of writing, USD/ZAR has quietly snuck up to test its all-time high near 13.75 on the back of concerns about China’s growth. This move has clearly spooked the South African Reserve Bank (SARB), which recently issued a statement noting, “In the event of developments that threaten the orderly functioning of markets or that may have financial stability implications, the SARB may consider becoming involved in foreign-exchange markets to ensure orderly market conditions.” In other words, the SARB stands ready to intervene and support the rand if the selloff worsens.

While the pair could see a short-term pause or pullback off resistance in the upper 13.00s, the longer-term bullish channel will remain intact as long as rates hold above about 12.00. Meanwhile, the secondary indicators are also painting a supportive picture, with the MACD trending higher above its signal line and the “0” level and the RSI holding in a bullish range above 50. Given the bullish fundamental and technical catalysts, traders may consider fading near-term dips in USD/ZAR in order to take advantage of the strong long-term uptrend.

Source: City Index

USD/RUB: Oil’s collapse could create record close

Meanwhile, Russia’s economy could also be casualty of slower growth in China, especially with the recent precipitous drop in oil prices. Traders are already considering the longer-term implications of this month’s developments, with USD/RUB rallying to test its record closing high at 70.50. The pair has been trending higher for the last several months, so it’s not surprising to see the MACD signaling bullish momentum and the RSI in overbought territory.

As long as oil prices remain on the back foot, the ruble will struggle to rally. A confirmed breakout above 70.50 would open the door for a potential continuation toward 75.00 or even the intraday record high at 78.80 next. Meanwhile, traders may look to fade any short-term dips back toward the mid-60.00s, if seen.

Source: City Index

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.