Positioning yourself as we head into a big news or risk event is similar to a high volatility news scalp except it’s a lot slower and you have more time to make a decision.

When scalping the news, Wayne has taught us to
1. Wait for the news release
2. Identify the direction of the market
3. Wait for a pullback
4. Trade in the direction of the market using a fib on a M1 chart. Once price has moved out of the fib zone, lock in the stop and let it run. Price will either breakout or pullback and knock you out at break even.

This high volatility strategy is a news scalp, we are all familiar with it because most of us met Wayne McDonell at the FXStreet NFP webinar. We can use a similar strategy before the release of a major news event.

On Sunday I uploaded an article about South Africa having a SARB MPC meeting this week and a rating review by S&P Global and Moody’s agencies. Just like a high volatility news scalp, we don’t know what the outcome of the news is going to be or how the market will trade the news until it’s release on the day, however with a news release of this magnitude (both the MPC and the rating review) we are able to see how the market is positioning itself as we head into the release. I would like to get into the trade before the release on Friday.

A lot of the time the smart money is already positioned before the release and when the news is released there is a lot of profit taking, which is fine because if we plan correctly and have done the necessary research of upcoming risk events, one could take advantage of both.

In my Sunday post, I outlined what Bulls would do and what Bears would do. What is my bias? Well, I am treating this like I would any central bank meeting (with a rating review added in for good measure) so I want to observe what the market is doing as we head into the meeting and move in that direction until the release. What do we do on the day? By then our trades should be in profit, stops either locked in at breakeven or in profit and the trade will either run further or knock us out in profit and we can then use a high volatility news scalp to catch the reversal from profit taking, if that’s what happens on the day. If the market continues in the original direction then we already in a trade (maybe several).

Note, some central bank trades are simpler than others – for example, the recent ECB and BOE meetings were not difficult to predict going into the meetings or at the release. Though sometimes we get what we have here. I often find that the market does not like uncertainty and risk and tends to mitigate that risk by getting out until there is clarity and an opportunity to get back in at a better price. There is a very good possibility that is going to happen with ZAR as we head into this risk event.

Below is updated technical analysis on EURZAR and USDZAR since my post on Sunday. I believe this bus is leaving today. I could be wrong, which is why you’ll notice detailed tactics for entering this trade – if you agree with my analysis. No setup, no trade.

EURZAR Daily

No change on this time frame since my Sunday post. Price remains at the Daily 21. Price is still bearish.

EURZAR H4

As forecast, price opened at WM2. As mentioned in my Sunday post, Bulls would be looking for a double bottom at WM2 or a profit taking zone. This is currently setting up on a lower time frame chart. WM2 gives us a target of WM4. MPP gives us a target of MR2. Both those targets make sense though because of the nature of this risk event one would pay attention to weekly and monthly profit taking zones as we head into the release and manage risk accordingly. Whatever happens, it is advisable to take profit at aggressive monthly or weekly targets. If you are a Bear you are paying attention to the fib zone and WM3 for a right shoulder. This isn't important to me right now, as I would like to be in a trade by the time price gets up there with my stop at B/E or in profit ahead of the release.

EURZAR H1

Something important to notice, price did not move up to last week's low (this week's WPP) and then continue down in the direction of the bearish trend (on this time frame), instead price created a top which now gives support once price does come off that resistance at last week's previous low/ this week's central pivot point. That is a key observation.

EURZAR M15

Time of day is important with Zar pairs because of the spread. The market opens at 8:00 GMT +2. You'll notice the spread will come down and the bulk of the day's move will take place between 8:00 GMT +2 and 10:00 GMT +2 (makes total sense with banks coming online at this time). So we expect price to move down to WM2 OR the green zone (the left leg of the double bottom on H1) and then up, through resistance zone 1 making a higher high with a pullback to role reversal and the beginning of the bullish trend. By now the H1 21 and 55 have started to converge and by the time price has broken through resistance zone 2 and coming down off WPP back to resistance zone 2 role reversal, the H1 21 will have crossed and it will be dynamic support. Price will then break above WPP and there will be one more pullback before we head up to the weekly target. That gives a trader three opportunities to get into this trade. If price does move down to the green support zone or WM2, this could be your first entry with the future pullbacks as additional entries.

USDZAR Daily

The only thing that has changed since my Sunday post is we now have a big green candle at MPP. Price is still bearish.

USDZAR H4

As forecast, price opened at WM2. Note the weekly bear zones that could make a right shoulder. As per EURZAR, we aren't worried about that right now - our job right now is to move in the direction of the market as we head into the news event.

USDZAR H1

The market respected WM2 and has created a top just below last week's low which will provide support when price comes down off this resistance. This is important to observe.

USDZAR M15

Price either comes down to the green zone or WM2 one more time before heading up and breaking the resistance zone 2. Resistance zone 2 becomes support and price breaks up though WPP with a pullback and WPP becoming support for a third entry if you got in on the drop to WM2 or support zone 1. If Price does not come back down to support zone 1 or WM2 and breaks resistance zone 2 at open then the pullback to zone 2 as support would be your first entry. You can see there was an opportunity for an entry at WM2 at market open on Sunday (very bad time to trade this pair due to spread) and yesterday when price pulled back to support zone 1. If price does move down to the green support zone or WM2, this could be your first entry with the future pullbacks as additional entries.

4 thoughts on “Update on EURZAR and USDZAR ahead of Ratings Review”

  1. Ronald Du Plessis says:

    Uitstekende post. Ek geniet jou werk baie.

    1. Ryan Gandalf van Jaarsveld says:

      Dankie boet! Let’s see how she runs… Best of pips to you friend!

    1. Ryan Gandalf van Jaarsveld says:

      Thanks Etienne! Let’s see how it goes…

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