Comeback time for the Rand!

Relief for consumers, relief for importers - the Rand finally had a solid week.

The amount of volatility being experienced is still less than ideal, but when it is driving the Rand stronger, few are going to be complaining.

While it benefits exporters, it is making making imports more expensive and driving up fuel, food and consumer products. It remains to be seen if this last week can bring the shockingly high fuel price down...

With the market failing to break above the psychological level of R14/$, we saw it break lower toward R13.50 on Thursday.

Once again, the talking point was Trade War. Deeper analysis is being done by many media outlets as to the effects on different countries, as we wait for the next move from global leaders.

One thing is sure: it will be the smaller economies with exports who suffer the most.

Anyway, let us get onto reviewing how this last week went...

As always, we did our forecast the Friday prior to the week, with the expected outlook for the next few days, weeks and months ahead. Based on the latest analysis it looked like the Rand had either topped out or was very close to doing so...

...we were just going to have to be patient as the wave patterns played out.

USDZAR_STU Click to enlarge

Key moments of the week...

  • Trade War - it had been the waiting game, but when the US tariffs went into effect on Friday, things became more serious.
  • Non-Farm Payrolls - the trigger once again for some Rand movement, as jobs numbers hit on Friday afternoon.
  • Fuel flies to R16/litre - warnings of rising prices had been there, but it still was a shock for all when the price of petrol hit 16 Rand to one litre!
  • Thailand rescue - a young soccer team trapped 4km into caves dominated headlines for the whole of this last week, with a rescue mission involving over 1000 persons still in progress more than 13 days after their initially going into the caves!
All in all, an extremely successful week for the Rand.

What continues to be pointed out by many economists (and is true, to a certain extent) is that a lot of what happens in the markets is related to the United States, as being one of the economic superpowers. The influence that they have is significant, and the economic events based in the US are of more importance - especially one's like we had this last week: Non-Farm Payrolls and June's Fed discussions.

With markets being moved by emotion, major events like this can provide those triggers for the underlying sentiment. This week, the trigger was for the market to move as anticipated by our forecast from Friday.

What was not anticipated was the substantial increase which we saw in fuel price - which surely should have had a negative on the markets (not so?) - and yet, what we saw was a strengthening Rand...

...and this was despite the Trade War fears

...despite heated Land Issue debates

And so it proves:

Markets defy logic.

This is why we cannot rely on logic or gut-feel to guide us as to market direction.

We learn this with time, and some hard knocks. It is a tough game to play!

Up to Friday, we had already seen a 30+ cent strengthening from the Rand during the course of the week.

But US Non Farm Payrolls is always a trigger for a big move .., and so we were expecting more.

And that was exactly what happened, as we saw a sharp drop of over 12c to close out the day, as the Rand briefly broke below the R13.50/$ mark...



And here is some other news from the week:

  • The Trade War had been a waiting game for the last few weeks...until Friday, when the US Tariffs officially kicked in, and began to escalate the war of words with China. Bejing called it the "biggest trade war in economic history"...now we will see what the next step is, as this will hurt China significantly...

  • What was also starting to filter through was some proper analysis on what effect the Trade War would have on different economies, particularly the smaller ones who are dependent on the bigger players. It makes for some interesting reading...

  • Petrol prices...we seems to be talking about them right now, and who would not be after they skyrocketed to over R16 per litre inland. This prompted calls from the ANC to freeze prices and consider decreasing or freezing the fuel levy. You can well understand this, as it ultimately restricts business.

  • US Jobs numbers better than expected and yet unemployment ticked back up to 4% - anything over 195k jobs was meant to fuel Dollar strength, but instead we saw the Rand making great gains on Friday afternoon/evening...contrary to logic once again!

  • US President Trump has also called for the OPEC to increase output and lower the price of oil. It remains to be seen if this will happen, but it would be a huge relief globally if they were to do it, as fuel prices are strangling economies!
And with that, the week closed out, with the Rand a tad over R13.50, heading into the new week...

The Week Ahead (9-12 July 2018)

So, a much better week, and a much better start for the week for once, as the market has tested the 13.30 target level that we had in the above chart.

Question is, can it follow through from here?

The wave structure and strength of market movement over the next days could be crucial in confirming direction for the balance of the year.

And we can be sure of this:

  1. The current volatility is not going away anytime soon.
  2. The markets will continue to defy logic and rational common sense.
  3. Unless you have an objective view as to where the market is expected to head, you are going to default into making emotion-based decisions - which is the very worst thing in this market!
  4. Although the Elliott Wave Principle is not a perfect forecasting system (show me one that is), it is still the best we have found for giving us and our clients the information we need to make informed, educated, and objective decisions.
But don't take my word for it - try it out yourself for 14 days free - and tell us what you find yourself.

Until next week...

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Until next week...
James Paynter

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