The Pound to South African Rand exchange rate has temporarily spiked higher as a result of a weakening Rand due to elevated political risk concerns since the President Jacob Zuma replaced respected finance minister Pravin Gordhan.
Now GBP/ZAR has stalled in its uptrend after meeting resistance from the 200-day MA at 17.36.
Moving averages are not just long-term signifiers of fair value but also dynamic levels of support and resistance, in and of themselves.
This explains partly why the rally has stalled and is a consolidating (going sideways) at the current level.
The shape of the rally, however, suggests more upside will come eventually, as it has formed what looks like a bullish flag pattern.
The flag consists of a ‘pole’, which is the steep part of the rally, followed by a sideways move, which is the ‘flag’.
The flag is expected to resolve itself in a breakout higher, which is then expected to extend in a move the same length as the flag pole, extrapolated higher, from the break.
On GBP/ZAR this would seem to indicate a potential move up to 18.800 eventually.
Such a move would need to fully clear the 200-day MA for confirmation, with a move above 18.000 indicating such a clearance had been achieved.