A volatile week of note for the Rand...will it continue?

Another volatile week. Another rough one for the Rand particularly versus the Dollar, although it managed to claw back some lost ground before the week closed.

As we headed into the week, many had hopes that the Rand had overshot the mark by weakening so drastically versus the Dollar, and that this week would be one of recovery...

...it was not to be, however, as losses continued...until Friday, when the Rand turned it all around.It was another week of hubbub, noise and distraction, both globally and locally.

As always, what we tried to do for our clients is cut through all the noise and distraction, and provide an outlook which is accurate and emotion free.

So join us in reviewing how it went, and how the week turned out as a whole...

First things first - our forecast for the next few days was delivered to our clients on the Friday evening before the week ahead, giving them a clear outlook to plan around.

With the USDZAR at R12.3066, the expected trend was for the market to bottom out between R12.32-12.26, and then to rise sharply, to move over R12.58, toward R12.75...

A crucial few days were coming up!

USDZAR_STU Click to enlarge

And a few key moments followed in the week:

  • Rand/Dollar loses ground - despite many feeling that the Rand had overreached itself being pushed over R12.50 on the prior week, it lost even further ground...
  • Eskom load shedding fears - the dreaded load shedding has been rumored to be back on the table again - but Eskom seems to think all is well
  • Awful April - the Rand closed out the week of April with a more than 5% loss in value versus the Dollar...ouch!
  • Transnet reshuffle - the much awaited Transnet issue took a new turn this last week, as Ramaphosa took action
  • US Unemployment - a record low of 3.9% was achieved on Friday...very impressive!

It had been a rotten April for the Rand, and there were hopes that May was going to be better...

...a month of recovery in response to the 5% loss of value in April.

A monthly range of 11.79-12.53 did not make pretty reading.

So was the month of May to be better?

Once again, that is what mainstream analysts thought, believing that the market would drift back toward R12.30/$ at the end of the previous week, after a high of R12.50...

...unfortunately, this kind of analysis often doesn't play out at all, because it is based on opinion and not any science.

It's like the weatherman saying, "There is an overwhelming feeling we have had had too much rain, so we are expecting some sun tomorrow."

Nice thought, but unfortunately, weather does not work like.

And neither do the markets.

By contrast, as it turned out, the market moved EXACTLY as per our forecast from the previous Friday...

What was confusing for economists was the lack of events to tie the volatility up with - it was a very quiet week, both locally and globally except for US Non-Farm Payrolls on Friday, and yet it was one of the worst weeks in terms of volatility, that we have seen in months.

What we have learnt over many years, as taking a non-emotional view of financial markets, is that there does not have to be a major economic, political or social event for there to be market movement...

...in fact, it is often the opposite.

So, especially in a volatile market, like we saw this last week (per the chart below) , it is absolutely crucial to keep your emotions out of your forex decisions - at a time like this, they tend to be at an extreme, and that is when you need to restrain them.



One of the major talking points for the week which would not have helped the Rand, was fears over Eskom load shedding.

If this happens to any country, it is a dagger in the back of the economy, so the fear of heading into load shedding again is significant. What is more concerning is the lack of clarity around the matter, as analysts are saying that load shedding is "highly likely this winter"...

...while Eskom is saying that all is well?

Who to trust?

It was also a case of who to trust in the US, as they have harshly chosen to slap steel tariffs on many countries - and one of them being South Africa.

What this means in essence is that South Africa will now have a 25% tariff on the steel which is imported into the US. This is going to be extremely difficult for the industry of steel export from SA, and other countries, when it is to the US. Along with that, a 10% tariff on Aluminium too...

As for the Rand, it endured an extremely volatile week, touching as high as R12.73 to the Dollar - exactly as per our forecast from last Friday - and the worst level we have seen since late December last year...

Other local news was Ramaphosa taking action on Transnet, announcing the resignation of the chairperson and directors - and fuel continuing to rise in cost, with some saying that R20 per litre becoming a reality before the end of the year...

...the rise in cost of oil was turning out to be a huge concern worldwide, with every country struggling with rising fuel prices

Final snippets for the week -

  • The Fed kept the interest rates unchanged, but with a now 95% probability of a hike in June...almost inevitable, but we will have to see what happens
  • US unemployment numbers hit a 17 year record as they broke below 4% - absolutely astounding!
Despite this being not all good news for the Rand, it strengthened well toward the end of Friday, ending back below R12.50...

The Week Ahead (7-11 May 2018)

Monday has broken with the Rand losing a bit of ground after managing to hit 12.43 against the Dollar.

So, where to for this week?

Based on Friday's updated analysis, there are a couple of scenarios playing out in terms of our wave count, and we are looking at some key levels to confirm one or the other.

Coupled with that, there are a few major fundamental events which could prove to be triggers.

To see these for yourself, please join us on a free trial, which gives you full access to our flagship Platinum+ subscription service, with all the bells and whistles for a full 14 days with no obligations and no credit card.

This will help to keep you focused on what really matters - what the sentiment patterns themselves are telling you, which will allow you to make informed and educated decisions - and to take action to protect yourself (or take advantage) in time - instead of looking back (one again) with regret, anger and frustration after the fact....

To see the outlook for the next few days, weeks, months and years, simply click below - and see the difference it will make to your forex decisions.

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Kind regards,
James Paynter

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