We keep saying it, but 2018 has been a harsh bump back to reality for everyone who is affected by the Rand...

...2017 was quiet, and the start to 2018 even quieter.

And then, from February, everything has just gone a little pear-shaped, and continually more so.

Let's be honest - this was a shocking week for the local currency:

  • Worst levels of 2018
  • A range of approximately 80c
  • Enough volatility to bring investors, importers & exporters to their knees


Where to from here for the Rand?

Well, we have some key target levels in mind, which, when broken, will give us a good idea of what is going to be happening over the next few weeks.

But let's start with a review of how this last week went...

Our forecast on Friday had the Rand at 12.6838, with potential to head higher still - the target was 12.85-13.04...

...if this was how it was going to play out, things were going to get messy.

Panic will definitely be setting in, with persons saying the Rand has lost its way, and is heading to R20/$...and it won't be the first time.

USDZAR_STU Click to enlarge

Key moments -

  • SA GDP - the worst since 2009 rocked the South African economy, with a serious bump back to reality.
  • North Korea Summit - the clock was ticking toward this major event, as Trump announced it as still being on. The 12th of June will be a historic day, one way or another...
  • G7 Summit - another opportunity for Ramaphosa to market SA to investors was this past week, at the Canadian G7 Summit. It also seemed to end in a bit of a global spat between foreign leaders...
  • SAA - the continually failing state-owned companies continue to be a South African headache, and none more so than SAA, as they ask for more time and money, once again...
  • Public Sector Wage agreement - finally, things seemed to moving forward as unions began to sign the agreement, which has been a headache for Ramaphosa basically since he was sworn in...

So, where did it all go wrong for the Rand?

Well, in just one week, we saw the 'Fear and Greed' meter do a full cycle right before our eyes.

It looks a little like this (click to enlarge):

So, that was what we saw....

...from an incredibly positive position - with economists talking up the Rand, betting on the GDP data showing how well the South African Economy was doing!

The major expectation was that the Rand would strengthen based on these figures, giving the whole market a lift...

...but never trust an economist.

The GDP figures hit. And they just provided a trigger to patterns which had been in place regardless of GDP figures or not - and the Rand took the hit...

While the outlook sometimes is very muddy, and has been tough over the last few weeks, importers and exporters at least have a strategic plan in place.

One of the 4 key points which you get when using the Elliott Wave Principle, is "Confirmation of when your assumptions are wrong" - while looking at an economic event does not give you an objective level to look at and assess.

So, this is what followed...

And so the headlines read, "2.2% decline in GDP sends rand spiraling"...

...to be honest, it was quite a shocking result - the worst GDP figures in 9 years!

From sitting pretty below R12.50/$ at one stag in the week, the Rand touched a shocking R13.28 - the worst level of 2018, last seen in mid-December 2017, in the midst of pre-Ramaphosa excitement.

Here are some other major events worth noting from this last week -

  • The G7 Summit is one of the largest global events of the year, where leaders from all countries come together to discuss the economy and health of the oceans. But it also serves as one of those opportunities for Presidents and influential government persons to achieve goals on the sideline. For Ramaphosa, this was investors - the R100bn investment drive continues, and he was going all guns blazing to find some financial support from global leaders.

    However, on the sidelines, those very global leaders were not having the most productive of meetings, as a spat over trade emerged between Trump and French President Macron, just after they were 'pal-ing' up a few weeks back...

  • The majority of unions have signed an important Public Sector Wage agreement. This was achieved on Friday, with 65.74% having signed thus far. A majority of 50% plus 1 employee is required to implement it, meaning that this was now in place. One headache gone for President Ramaphosa!
  • SAA...the problem child of state-owned companies. As seems to be the case every few months, this last week there was a another request from SAA - in simple language, it went something like this: 'we need more time and more money'

    It's the 'same old, same old', sadly, and it likely will be that they are bailed out once again - I think the advice of "cut your losses while you still can" would likely be more appropriate advice, rather than funding and more time...

  • So, after the horrific showing of the GDP, analysts and economists were scrambling to see where they had gone wrong...it resulted in a large revision needing to be done to forecasts of growth for the remainder of 2018, as there was a harsh wake-up call back to reality once again.
  • To make matters worse, South African's business confidence index which boomed in late 2017 and early 2018 (a positivity surely from what was happening with the change in presidency), took a further dip, marking the 4th month of decline in a row. This has bee on of the major talking points for many, saying that this is a sign that the economy has turned a corner...

    ...it seems that thought process was premature.

After all was said and done, the Rand closed out its week around R13 - one of the roughest weeks we have seen in many months - definitely not one to remember for the SA currency!

The Week Ahead (11-15 June 2018)

What a difference a week can make - in fact some 45 cents or so.

The Rand starts this week at the levels not seen since November last year...and indications we could go higher.

The move last week has invalidated one of the possible wave counts which has been keeping alive the chances that the Rand had reversed below idealized targets - but the move well above 13.00 to hit R13.28/$ last week put paid to that possibility!

With the revised Near and Short Term outlooks, we are looking for perhaps a bit more Rand weakness, but we should see some stiff resistance levels to further advances in the coming days.

We will be keeping our eyes firmly on how the market plays out from here versus our current outlook, and we suggest you do too...

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Kind regards,

James Paynter

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