Fundamental USD/ZAR Short
This trade is based purely on fundamental analysis. The dismal exchange rate has been caused by dramatic capital flight, a drastic decrease in exported commodities such as palladium and gold, Eskom bailout, and the monetary policy of the South African Reserve bank. Substantial risks are the unpredictable decisions of the South African Reserve bank.
That being said, purchasing power parity will correct this anomaly to some extent, as it has with previous drops in the Rand's value. Furthermore, while South Africa's economy is perceived to more unstable, the fiscal policy of the United States has ensured that inflation will have a very substantial risk to dollar's value, due to the unprecedented amount of liquidity injections and repossessions undertaken by the Federal Reserve. Purchasing power parity will also help the Rand, in the sense that if the Euro increases in value (I argue it will outperform the dollar in 2020) there is greater financial interaction between South Africa, and other African countries who's currencies are pegged to the Euro.
Regarding commodities, after the pandemic subsides, palladium demand will rise, (South Africa is the world's largest producer) See the EZA(MSCI South Africa Index) and PL1! (NYMEX Palladium Futures) in the image below. Everyone and their mother knows gold is extremely bullish, and South Africa holds approximately 50% of the world's gold resources.
Push comes to shove, there are many factors pointing towards a recovery of the rand, and no such saving grace for the dollar. The outlined trade would yield approximately 200% return per margin required at 1:50 leverage, 7% margin rate.
P.S. There isn't even a category for fundamental analysis on tradingview! :S I am also not using a stop loss on this order, so keep that in mind regarding the "Short position" on the chart.
That being said, purchasing power parity will correct this anomaly to some extent, as it has with previous drops in the Rand's value. Furthermore, while South Africa's economy is perceived to more unstable, the fiscal policy of the United States has ensured that inflation will have a very substantial risk to dollar's value, due to the unprecedented amount of liquidity injections and repossessions undertaken by the Federal Reserve. Purchasing power parity will also help the Rand, in the sense that if the Euro increases in value (I argue it will outperform the dollar in 2020) there is greater financial interaction between South Africa, and other African countries who's currencies are pegged to the Euro.
Regarding commodities, after the pandemic subsides, palladium demand will rise, (South Africa is the world's largest producer) See the EZA(MSCI South Africa Index) and PL1! (NYMEX Palladium Futures) in the image below. Everyone and their mother knows gold is extremely bullish, and South Africa holds approximately 50% of the world's gold resources.
Push comes to shove, there are many factors pointing towards a recovery of the rand, and no such saving grace for the dollar. The outlined trade would yield approximately 200% return per margin required at 1:50 leverage, 7% margin rate.
P.S. There isn't even a category for fundamental analysis on tradingview! :S I am also not using a stop loss on this order, so keep that in mind regarding the "Short position" on the chart.
Comment:
Short position closed. Return in excess of 200%.