A return to R13/$ as the Rand trend turns again?

Back on the Rand-positive path with a bump!

After a fairly disastrous week, perhaps not something that many were expecting ...but the Rand behaved as per our charts, which showed the Rand was expected to top out and move down to the lower R13s.

And that was just what we saw.

It was on the back of some unforeseen news events which no one saw coming, such as mega investments in SA from foreign countries, and some foreign currency flowing back into the bond market.

As always, though, it is a question of whether this will continue.

But for now, let's take a deeper dive into the happenings of the week.

Our forecast from Friday was a seemingly dangerous one...there was a lot of upward momentum in the market, despite the pullback, and yet our count was showing that the Rand was heading down toward R13/$...a target area of 13.21-13.03 seemed a long way away.

USDZAR_STU Click to enlarge

And then there was a whole pile of events to keep us on our toes

  • Chinese investment - out of nowhere, another enormous investment into South Africa gave the Rand some mid-week impetus!
  • BRICS conference - it was the major talking point for South Africa as discussions between these countries took place...
  • Eskom...@#%*^#% - What can actually be said? Another terrible report of Eskom financials plagued the week as money continues to somehow 'disappear' out of state-owned companies.
  • EU-US Trade Agreement - finally some stability to the shaky global spectrum, as 2 of the major global economies in the United States and EU resolved to negotiate on trade. We will have to see how this plays out.
  • US GDP - a staggering 4.1% growth should have put the Rand on the back foot - such was not the case...

Our target area seemed even further away after the start on Monday which saw the Rand soaring to R13.56 - edging closer than what was comfortable to our invalidation level of R13.62...

...this was after some bad news from Eskom (again!) as they once again posted some shocking figures - a huge R2.3bn loss was declared for 2018, as well as R19bn in irregular spending!

....R19 000 000 000 in irregular spending!!!

But then came some good news (on face value):

If there is one thing Ramaphosa has delivered on, it has been his investment drive as he has just secured his 3rd major investment (2 others over the last few weeks from UAE and Saudi Arabia).

BUT...the disturbing bigger picture is what sort of foothold and leverage is this giving to Communist China within South Africa?? And of course, it remains to be seen what actually happens to the money (or a portion of it), especially after situations like Eskom's latest shenanigans?

However, the Rand took this positive news splendidly to trigger the anticipated move down right into the target area we identified the previous week:



As the market bottomed out around R13.09, it was right in our target area of 13.21-13.03 and was primed for reversal, which was just what we saw as the market moved back over R13.25 as we expected it to.

Late on Friday, the US GDP figures for Q2 arrived - and many were apprehensive and unsure of what to expect from this. It had been a difficult quarter for the US with the Trade War and a lot of speculation around what the effect it would have.

With that, if the news was good, the Rand was expected to take a beating - that was what the economists were expecting, that is...

...the figures hit, and a massive 4.1% growth just in Q2 was announced, with a significant reduction in the trade deficit too.

This should have triggered a Rand collapse versus the Dollar...not so?

It didn't. The Rand held its own, and the R13.20 level held strong.

There were more events which dominated the week, such as:

  • It seems that this is a point we are mentioning ever single week now, but it does keep cropping up, and that is the petrol price increases, as the 4th consecutive increase since April is happening. The AA has warned as to this, that it is a symptom of a weak economy - which is not just an easy fix, and in fact means that there is a good chance of it continuing for some time yet...
  • The Trade War is still lurking, but this week there were a few good signs. We were still awaiting what would happen as a result of the threats from US President Trump on imposing $500bn worth of tariffs on Chinese imports, but the arrival of agreements between the US and EU to negotiate and the excellent US GDP figures may mean that things are on the right track. It remains to be seen whether this can be sustained, and whether SA and other smaller economies can flourish as a result of the US strength.
  • Venezuela's dire situation became even worse this last week as the prediction for inflation levels by the end of this year arrived...the expected figure: 1 million percent, as per IMF Forecasts. This is a shocking example of what can happen through the introduction of Communist policies, including land expropriation without compensation, ultimately resulting in famine and a country in absolute disarray and poverty - this article by Anthea Jeffrey serves as a disturbing warning to the ANC/EFF's agenda.
  • Lastly, some good news on SA Bonds - the money is beginning to trickle back into the market after months of selloffs - and the Rand will be hoping it continues! For this week, it closed out under R13.20/$ to end a very successful 5 days!

The Week Ahead (30 Jul - 3 Aug 2018)

The Rand has held it's own for once on a Monday, and while some more Rand strength is expected, we do not anticipate a one-direction week.

We have some High impact economic event triggers this week especially out of the US, so expect another week of sudden big moves (Platinum-level clients can see these with our Fundamental Data & Releases pop-up table).

We will keeping our eyes fixed to the unfolding Elliott Wave patterns, using our unique methodology of Elliott Wave, Fibonacci time and price ratios, and momentum and cycle studies to give us a view ahead.

Interested to see how this will work for you?

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All the best for the week ahead,
James Paynter

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