A tale of two halves...as predicted

When the Rand crashed its way up to R13.71 on Tuesday last week, alarm bells were already going off...

After a volatile period, it looked like the Rand had finally cracked.

Now, R14 and above was on the cards.

Or was it?

Our forecast from Monday had said otherwise...

...but the feeling around the general public gave it no hope.

So what was it going to be?

A tumbling pack of cards?

Or an unlikely recovery for the Rand?

Read on to find out...

How It Happened (8-12 May 2017)

First news of the week was that Emmanuel Macron was the President-elect of France, and his victory had been quite a landslide vs Le Pen with 66.1% of the votes.

So...a new era starts for le français.

And now we needed to move on to the new week for the Rand. What effect would this have on the markets? Only time would tell.

First things first...

Our forecast (see below - click to enlarge) was released to show the position of the market. It sat at R13.5098 to the Dollar and the expected trend for the next few days was a weakening of the Rand, before it would then strengthen further. The invalidation was 13.7117, and the market was expected to top out before then.

USDZAR_STU Click to enlarge

And things proceeded as predicted throughout Monday. The market weakened onwards from its low of 13.40 to the Dollar on Monday, and by the end of the day was already pushing over R13.60/$...

It never seems to take the Rand long to send the public into worry and doubt...

Of course, economists put this down to poor Chinese Trade data, and the weakening of commodity prices.

(It's always easy to look for reasons - after the market has moved!)

In other economic news, it was said that global markets will again shift focus to the US Fed following Macron's victory in the French elections...

Macron is very Pro-EU, and his victory was said to have calmed the waters regarding the chance of 'Frexit' following Brexit.

With a Fed rate hike chances now sitting at 95%, we could expect some fireworks soon.

But onwards to Tuesday...

With the market at a slightly precarious level of R13.62/$ on Monday morning, it was expected that we could see some further weakening of the Rand.

And so we did...

...the market trundled on upwards to R13.706 by mid-morning, and it looked like there was trouble around the corner.

Or was there?

Within a whisker of our invalidation level, the market turned, and never looked back for the rest of the week.

Around the time business closed for the day, the market had broken well below R13.60 to the Dollar...

...it sure looked like we had turned the corner.

Despite some retracement, it was clear by Wednesday morning that we had turned, as business began with the market sitting quite comfortably below the R13.60 level, more than 10c from where we saw it the day before.

And then it was Wednesday - and what we had was 2 important events:

  • ECB's Draghi making a speech post the French election
  • Fed member Rosengren also due for a speech as we looked for insight into the Fed hikes upcoming...

Then the one event event we did NOT see coming:

President Trump's decisive action against FBI Director James Comey...

An ongoing fued between Congress, the FBI, the White House, President Trump and others over the Russian hacking of the election, has been dragging on since before election day in November last year, and it just had to come to a head at some stage.

And so it did.

Trump announced that he had officially fired Comey almost out of the blue, just opening the doorway to a whole lot more controversy and conspiracy...sound familiar, South African politics followers?

The Rand though, seemed to like this news!

With aplomb, it strengthened strongly sending it to sub R13.45/$ levels, with a view to going even further...

...this was exactly opposite to what economic advisors would have said, as it "should" have led to a risk-off sentiment which is ZAR negative.

But it didn't. Instead it followed out the forecast from Monday.

By the close of business on Wednesday, the market sat happy at R13.45 to the Dollar...

And then it was time for Thursday - we were now onto the home stretch for the week!

And as was expected, the market initially had had a slight retracement during the course of Wednesday evening, and then the downward trend resumed.

We now sat at R13.4472 to the Dollar.

It was also time for our next forecast, which showed us quite a complex situation with multiple important levels, invalidations and target areas...this one could be quite a confusing one for those who have not been reading our forecasts for a while, so let us try to decipher it.

It starts off with 2 counts (basically, two possible routes the market could go) and a 60% chance of Count 1 being correct, and a 40% chance of Count 2 being correct.

So a slight favouring to Count 1, which would take is further down (stronger ZAR) into the R13.26-13.04 area, confirmed by a break below 13.3888. The invalidation for this would be R13.9609 - if that were to be crossed, then Count 1 is negated.

Make sense?

USDZAR_STU Click to enlarge

From the point of our publication onwards, the trend was clear.

Ker-pow!

The Rand pin-dropped over the next 4 hours...and suddenly it had hit R13.31/$!

But it seemed that was as good as it was going to get, for Thursday at least, as the Rand began retracing after that. But it had been an excellent day for the ZAR on the back of BoE's interest rate decision.

By close of business, the market was sitting at a level of R13.38 to the Dollar...just Friday remained.

And then there was one...

The last day of the week meant that just 24 hours remained for a rollicking week to come to a decisive conclusion.

And there sure was no lack of news...

Brian Molefe has agreed to return to Eskom as its chief executive on Monday, after the board rescinded his application for early retirement. What this means is unclear, but it certainly was the news of the day.

In economic news - South African political risks mount and commodity prices retreat, and banks from JPMorgan Chase to Morgan Stanley and Bank of America are telling clients to short the rand against other major emerging-market currencies, including Turkey’s lira and Mexico’s peso.

And although a quiet end to the week would have been nice, it clearly was not to be as the market took a very volatile turn around mid-morning.

It shot up for no apparent reason, losing almost 15c in a couple of hours...

...only to gain it all back again, falling a full 16c by late afternoon!

From there, it bounced a further 10c upward, leaving businessmen, investors and economic advisors alike tearing their hair out.

The old USDZAR never fails to have a few hiccups, and this last dash on Friday evening definitely didn't help the closing out of what had been a wonderful week for the South African Rand.

Still...progress had been made, as the week closed at a good R13.37/$...

The Week Ahead (15-19 May 2017)

Another week closed off.

And another just beginning.

A high level of uncertainty has surrounded the political sphere for far too long in South Africa, and it feels as if it is nearing breaking point... ...on the other side of the pond, the USA's government is fairly topsy turvy itself. There always seems to be another shocker just around the corner!

This kind of thing does drive the sentiment in a market.

But driving the sentiment in which direction?

And how can we track that direction?

We need something which can filter out political and economic news, yet take it into account.

Confusing, I know, but think about it...

It is not that all what happens surrounding markets has no effect on it - far be the thought. It has everything to do with it. But it is just impossible for us to try to encapsulate and understand all of that information to make rational decisions.

Enter the Eliott Wave Principle.

Humans behave in irrational yet PREDICTABLE ways in financial markets - and the Elliott Wave Principle is the discovery that these abide by certain Laws of (Human) Nature.

Based on this, we can forecast the most probable outcome in the coming days, weeks, months and years.

It's a fantastic discovery, and it makes understanding the markets a whole lot easier. Its a fun game when you know what is going on...

Do you want to understand more about forex markets?

Please let me have any questions you've got. I will be glad to answer them.

Best regards,
James

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