USD/ZAR: A Major Topping

Nearer term $/zar outlook :
The market is consolidating from the Aug 28th high at 10.50 (test of long term, 12 year bearish trendline, see longer term below), and is seen in process of a topping for at least a few months (potentially much more). Appear to be forming a head and shoulders since June, generally viewed as a reversal/bearish pattern, and suggests declines to the neckline (currently at 9.40/45, also the bullish trendline from Aug 2011) and eventually below (see in red on daily chart below). Currently, the market is testing key resistance at the ceiling of the bear channel from June (currently at 10.21), an "ideal" area to form the right shoulder, and suggests that such a downside resolution may be nearing. Further resistance above there is seen at 10.36/39 (left shoulder) and the Aug high at 10.50, support before the neckline is seen at 9.66/69 and the bullish trendline from Jan (currently at 9.54/57).

Strategy/position:
With a top for at least a few months seen forming, want to be short and would sell here (currently at 10.08). Initially use a wide stop on a close above that 12 year bearish trendline, as there is some risk for another week or 2 of a broader topping ahead.

Long term outlook:
As discussed above, the market is consolidating from the Aug 28th high at 10.50 and test of the long term, bearish trendline from Dec 2001. Note too that there are number of other, longer term negative signs and suggests that an even more substantial top (for 9-12 months or more) may be forming. These negatives include an overbought market after the surge from the Dec 2010 low at 6.52, potential completion of the 5 wave upmove from that low (see numbering on weekly chart/2nd chart below), and bearish long term technicals (see sell mode on the weekly macd). Also don't forget that more substantial reversals generally begin with smaller ones....

Strategy/position:
With a top for at least a few months (and potentially much more) seen in process of forming, would also switch the longer term bias to the bearish side here (currently at 10.08).

Current:

Near term : short Nov 4th at 10.08, topping for at least a few months.

Longer term : bearish Nov 4th at 10.08, potentially more major top also in place.
USD/ZAR" title="Daily USD/ZAR" height="416" width="515">
USD/ZAR" title="Weekly USD/ZAR" height="416" width="515">