USD/ZAR, USD/MXN and GBP/JPY Forecast – Carry Trade Struggling on Tuesday

USD/ZAR Technical Analysis

The carry trade is on its back foot during the Tuesday session. The US dollar has rallied a bit against the South African Rand during the trading session here on Tuesday, as the interest rate differential is not helping. That being said, when you look at this chart, you could make an argument that we are trying to form some type of bearish flag. We will just have to wait and see.

I would be cautious, though, because shorts in the US dollar right now are at 14-year highs, and typically, that is when things change. It will be interesting to see how this plays out. I do have a spot on the chart where I change my tone and that is above 16.5.

As things stand right now, I think the 50-day EMA or anywhere near there showing signs of exhaustion would be a shorting opportunity because you do get paid to be short.

USD/MXN Technical Analysis

The dollar against the Mexican peso was slightly positive, but this is a market that tends to grind for weeks at a time while you collect swap being short; that is the point.

That being said, if we can break above the 17.7 level, I begin to think about a trend change. If we break above the 18 level, then I would call it a trend change. As things stand right now, it is still very much a fade the rally type of scenario.

I think this is a pair that is, unfortunately, often overlooked by retail traders because it can really pad your account. You can see that had you shorted this pair anytime during summer last year, not only would you be up nominally, but you would also have collected a ton of swap.

GBP/JPY Technical Analysis

The British pound against the Japanese yen is definitely showing the carry trade breaking down during the session. This is a little bit different because there are some dreams out there that Japan is going to normalize, and I think that is part of what is going on here.

We will have to see how this plays out, but I will be looking for this 205-yen level as a potential floor. I do like buying this pair, but if it is going to let me buy the British pound at a lower level, then I am fine with waiting for that opportunity.

If we turn around and break above the 210-yen level, then I think the carry trade picks back up and we go looking at 215 yen.

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