US dollar has traditionally been accepted as playing a special safe haven role in times of trouble in Iran as it is used more than any other currencies in foreign exchange structure.

Until 2002, the exchange rate mechanism was on a multi-layered basis, benefiting from the official rate while the private sector had to pay the market rate, hence creating an unequal competition environment in economy. The official rate mainly applied to national oil and gas exports as well as imports of essential goods and services.

Later on, aiming at unifying currency exchange rates, in 2012, the government launched a foreign exchange center that would provide importers of some basic goods with foreign exchanges, which was canceled following the strong depreciation of the Rial between 2012 and 2013 but was put on the agenda again in 2015 for use in the reunification of forex rates (planned for 2017).

Over the past decades, the market rate has faced several depreciations against dollar due to significant occurrences such as Iran’s Islamic Revolution, artificial parity arranged in prior governments-in-power as well as western nuclear sanctions on Iran’s activities.

Apart from the Iranian Rial’s devaluation through the time, now the government has targeted to unify the exchange rates to stop inequality in competition environment and potential abuses in rate differentiations.

Below is the chart for Rial’s parity rate to Dollar since 2009. Dollar’s appreciation is quite apparent in the chart through the time till now. But the point is that, Rial’s rapid depreciation is diminishing and the parity seems to have been adjusted to current interest rates of under-study countries.

Where is Iranian Rial heading to-1.png

From the technical perspective, dollar experienced a huge rally during 2011 to 2013 which depreciated Iranian Rial to less than one third of its value. Interpreting the move from 10,000 Rials to almost 40,000 Rials per Dollar as an impulsive wave 3 in Elliot Wave Theory, Iranian Rial regained some of its lost value and the parity declined to 28,800 Rials per single Dollar in early 2014, an adequate correction called wave 4.

Looking closer to the chart reveals that, since 2014, the parity’s fluctuations have been trapped in a gentle up-going channel forming an extended wave 5 in action.

From the timing point of view, a periodic time cycles has been detected where late Decembers of past few years seem to have been a suitable time period for the market so far, to form a new high where market usually have retraced for almost 6 months to form a supportive low.

Where is Iranian Rial heading to-2

 

Bearing this pattern in mind, it is supposed that the market has already formed a higher high just recently (shown on the chart above) and has entered its correction period, heading to 36,500 zone in coming months.

Technically speaking, as long as the mentioned bullish channel is not broken in either directions, it is interpreted that stable conditions are in action in Iran’s economy, meaning that the lower band plays a supportive role for Dollar gain attraction against Rial and on the flipside, the upper channel line is supposed to resist Rial’s depreciation.