S&P cut South Africa's sovereign rating to junk and the South African rand plummeted around 2% to 13.6983 per dollar. Last week, President Zuma fired the highly respected finance minister Gordhan and 11 other ministers. Many analyst’s expected South Africa’ sovereign rating status to be cut to junk by all three key rating agencies.
Moody’s also placed South Africa’s sovereign Baa2 rating on downgrade review. They cited the abrupt change in leadership of key government institutions.
The USD/ZAR daily chart shows the recent surge has recaptured both the 50- and 100- day SMA (s). Initial resistance is coming from the 200-day SMA, which currently trades at the 13.7333 level. Major resistance will come from the 13.7500 to 14.0000 range. If we eventually see ZAR currency (rand) strength prevail, we could see a return to the 13.4641 region. Major support remains the psychological 13.0000 handle.
The trade: Sell USD/ZAR at 13.9500, with a stop loss at 14.0500 and a take profit at 13.6500. The Risk/Reward Ratio is 1: 3