This was the week for the rand!
What a turnaround, from the Turkey crisis and the weeks following, which was just a few months ago. The market was soaring over R15/$, and ever closer to R16 to the dollar...
...people were talking about R20 to the dollar. Others were saying R25.
However, these kinds of emotional rand predictions don't get us anywhere.
We have to cut our emotions out of any forex decisions in order to make informed and accurate choices.
With that in mind...
Let's take a look at how the week panned out, and how you could have been prepared for the rand to break the magical R14/$ level...
...and then lose it all at the end of the week.
Firstly, our forecast was issued on the Friday prior to the week.
It showed the rand had a little more upside potential (see below - click to enlarge), and then we were expecting it to test and break below the R14.00/13.99 support...
Here are some of the big events from this last week which helped as triggers for rand movement:
- US Mid Terms - it was a mixed outcome from the major US election, one which technically should not have been dollar positive or negative... However, it did not quite work out that way
- SAA nightmare - it just continues, and it seems to have no possible exit plan due to the deep level of debt which the state-owned entity now sits in
- Eskom-China loan - some details, although not completely official, have emerged as to what the T&Cs are of the Chinese funding
- Petrol & oil price - interesting developments following US sanctions on Iran, and perhaps not what one would expect
Well, where to start on the rand?
It was a major week, and was not all one-way traffic either for the stronger rand.
Initially, we saw a break higher on Monday morning, which took us to R14.41, just below our target area from the forecast on Friday...we were then primed for a reversal any minute.
This coincided perfectly with the US elections which were on Tuesday - the expectation was as follows:
- If there was a 'Blue wave' (Democrats make a lot of advances and wins), then it would be dollar negative, as the Republicans are generally seen as better for the economy.
- If there were no major Democrat wins and regaining of the House of Representatives or Senate, then we could see a stronger dollar, as the Republicans would still be in control.
However, this was the economists’ expectations. We were just following our forecasts...
On Monday afternoon, we saw the rand strengthen all of 25c, before the elections even started.
And then, in the days following, a break as low as R13.86 on Wednesday:
The break below R14/$ came on the back of mixed news from the elections - it was going to be a Democrat majority in the House, and a Republican majority in the Senate - technically, a gridlock - which was not really dollar negative...
Currencies Direct and Exchange4Free both suggested that "Markets will digest the results of US elections today, with no real ‘blue wave’ it is unlikely that we’ll see the rand break below 14."
The markets did not see it this way.
The rand took full advantage of the weaker dollar, and roared lower!
And that is why we do not trust our gut feel!
Only robust systems like Elliott Wave can see this sort of thing coming!
One thing is that, the US will be more moderate in decision making in bills etc, due to split power in the House & Senate.
And suddenly, the Turkey Crisis of a few months back was fading into the distance...
...and the rand was back on the front foot!
Unfortunately, it did not quite end that way, but on the whole, a solid week from the ZAR...
There were other major economic events this last week. Here are a few of them:
- It seems motorists may gain an early Christmas present if oil continues its current path, as it has now plummeted all of 25% down to around $60 a barrel for WTI CRUDE, just 1 month after it was touching USD80! This is another example of why we cannot apply logic to the markets, as this is just after the US has imposed crushing sanctions on Iran, which would surely have been bad news for the oil price. Despite that, the surge lower has continued, and not a moment too soon! At this stage, it means that SA petrol price has just stabilised - if the trend continues however, it must surely begin to get cheaper again.
- The SAA debacle... what can possibly be done to solve it? Many persons would have said "just flog the mess before it is too late". And that is a fair point. But now it seems that it IS too late, as Ramaphosa announced that SAA cannot be sold due to how much debt it is currently carrying. That is a scary thing, but you can well believe it is so, as the debt-laden SOE is now sitting close on R10bn in debt, and that debt being immediately payable would likely collapse state coffers. What next then...?
Yet, on Friday, the news hit that SAA was in fact considering a share sale in order to find funds before the end of the year...
- And then we come to the next problem company for the government, and that is Eskom - which recently was bailed out by China in a R33bn loan. This is very concerning for a lot of people, because of the lack of clarity on the terms and conditions of that loan, that what Ramaphosa was doing was signing something with small print that will come back to bite the country. However, this week, the President came out and said that there were "no conditions" to the loan and "none of SA's assets will be seized in the event of a default". Hard to believe, but that is the best information we have on the deal right now - and hopefully it is true! Some good news on this front is Eskom is going to be removing senior management to reduce costs.
- The African Investment Forum has been the next major summit on the horizon, which began on Thursday in Sandton. The last investment summit at the end of October was very successful for SA, with an influx of R290bn in investment into the economy, and R400bn in investment pledges. Ramaphosa is now saying that the "Africa Investment Forum will help close deals worth $28bn" and that it is going to be like a "marketplace" to do deals and conclude transactions. We will have to see how this one pans out, if the President can have more success with investment seeking.
Toward the end of the week, business confidence figures came through showing a nice uptick in October, but mining figures disappointed with worse than expected performance.
The rand bounced out of sub R14/$ target area, after touching R13.86. The final 2 days of the week were less than ideal for the local currency, as when it just seemed the Rand had built the momentum to cruise to R13.50 to the dollar, there was a strong retracement, which saw us up 50c in a matter of hours.
The market stabilised to close around R14.35 at the end of the week, after touching over R14.40 - our opening rate for the week...
So, back to where we started. The week was over, and a whirlwind one at that...
The Week Ahead (12-16 November 2018)
The rand has already had a less than ideal start to the week, pushing over R14.40 again, to test some support levels.
We are watching this closely, to see how it plays out in relation to our forecast from Friday.
A fairly quiet week on the economic front is planned, with US retail sales being the biggest event of the week, on Wednesday.
Over the weekend, Brexit negotiations again took place, and it seems the whole situation is only becoming more messy. This could be a big one to watch in anticipation of the trigger on the pound when something decisive happens.
Also late last week was bad news for ousted President Jacob Zuma, whose appeal on the payment of legal costs of the state capture inquiry were unsuccessful. This means he will be paying the full sum himself - rightly so. Justice strikes again.
Well, we can look at all of this and try to draw an assumption as to where we are going...
...but chances are we will be wrong, as that would be an emotional prediction.
The best way to get an idea of where the market is headed is to understand what pattern of sentiment is currently in play and how such patterns played out historically.
This is what the Elliott Wave Principle (our forecasting methodology) provides, which we use together with a combination of price-ratio analysis, momentum and time-cycle studies to give clients the most likely outcome for the next few days, weeks, months and years ahead.
