It’s been a bad year for USDZAR bulls. The pair has been declining ever since it reached a high of 19.34 in early-April 2020. As of this writing, it is barely holding above 14.30, down 26% in a little over twelve months. Does this mean now is a good time to join the bears?
We think it is the exact opposite. Not because we have some special insight into the economies of the two countries, the COVID-19 situation or their central banks’ upcoming rate decisions. Instead, we think selling USDZAR now would not be wise, because of the Elliott Wave chart below.
USDZAR ‘s daily chart reveals that the structure of the decline from 19.34 is impulsive. The pattern is labeled (1)-(2)-(3)-(4)-(5) where the five sub-waves of (1) and (3) are also visible. Wave 5 of (1) is truncated since it didn’t breach the low of wave 3.
According to the theory, a three-wave correction in the opposite direction follows every impulse. This is the reason we think shorting USDZAR now would be a bad decision. Once wave (5) finds its bottom, a notable corrective recovery is likely to begin. Wave B can lift the pair above the 16.00 mark and possibly go for 16.50 before the downtrend resumes in wave C.
Similar Elliott Wave setups occur in the stock, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!