Good Afternoon all.

After making my bold prediction yesterday the Dollar Rand will trade towards the R11.50 level over the next 17 – 24 months, I have been inundated with messages asking me why and hence I have decided to send this out to explain my view.

Firstly, the weekly report that I send out is purely technical, although I am very cognisant of the macro factors.

After making a significant pullback from the Covid high, the Dollar Rand looks very much to be making what I refer to as an “irregular flat” formation.

This formation will be complete at R11.57 in a perfect technical scenario, while the actual range is R13.00 – R11.57.

I have been perplexed as to why the ZAR could become this strong, especially in a world where the Fed has turned Hawkish, but alas, I believe my charts first and foremost.

Last week I stumbled on some research showing the ZAR’s 87.39% correlation to the CRB Index over ten years.

I decided to overlay the ZAR & the CRB Index (see chart), and one can see that the correlation is strong.

If one believes in the commodity bull market, one cannot ignore the fact that the ZAR should strengthen significantly over the next 24 months.          

Please note that the above view does not mean the ZAR cannot weaken as there are Black Swans that could quickly raise their heads this year with geopolitical tensions that could see the ZAR go through a risk-off environment before strengthening.

However, I can now confidently say that all significant spikes relating to ZAR weakness would constitute a short of the Dollar Rand chart.

In closing, the state of the economy, the potholes in your suburb, and the general negativity you may feel have nothing to do with the direction of the ZAR, and at this stage, the ZAR is set to go where it hurts the most players!

Happy hunting, and may 2022 be the year of patience in your trading.