Rand breaks above R12/$ (as forecast) amidst an unsettling week...

A slow week for the markets, as we saw them tracking sideways for the most part.

The Rand held fairly strongly for the whole week...until Thursday/Friday, when we saw the market lose ground to test the physiological R12/$ mark...

For cryptocurrencies, it was nothing short of a bloodbath, as all major markets continued to tumble. Bitcoin hit below $8000, sending shock waves through the industry.

It is amazing to see the same human sentiment in all markets, whether fiat (normal Rands and Dollars) or cryptocurrencies.

In December, it seemed like the Bitcoin euphoria was going to drive it to $50k...

...and of course that is when the market reversed.

The same Elliott Wave laws apply to all such well-traded liquid markets:

When sentiment is at an extreme, it is due for a major correction and change of direction. Every time.

Anyways, on to reviewing this last week...

Firstly, our forecast from Friday painted the picture for the week (see below - click to enlarge). We expected a bottoming out shortly in the 11.82-11.62 area, with the USDZAR heading higher toward R12/$ following that...

USDZAR_STU Click to enlarge

Most of the news came from the international space this week, as Trump and the White House made some big moves, which were said to have an effect on the Dollar.

Here are are a few of them:
  • Trump fires Secretary of State Tillerson - a shock move in the midst of North Korea possible negotiations...will this unsettle the whole situation?
  • US sanctions Russia for 2016 election interference - it has been a long time coming...what will the effects be from this?
  • US Trade War starting? - in an effort to reduce its trade balance of over $100bn with China, is the US treading on China's toes as trade war fears increase...?
  • Zuma to face charges - who would have thought that this would ever have happened? Suddenly, the tables have turned, and he will have his real day in court!
  • Moody's Credit Rating decison - the countdown timer is ticking, and we are less than a week from D-Day...

There were a few other snippets from the week that could also be highlighted...
  • US economy is enjoying some good times, confirmed by previous week's with jobs data which was incredible - 313000 jobs added, and unemployment down to a stunning 4.0%...whether Trump is loved or hated, the US economy is definitely ticking underneath his watch. However, watch for a swing of sentiment - in all things financial, there is always going to be that swing.
  • Fed Rate Hikes were expected to total at 4 this year, which would be quite hurtful for the Rand. At this stage, this is only speculation, but it does appear likely.
  • Moody’s have warned that the Cape Town water crisis would cause the city’s borrowing to rise sharply as well as capital expenditure - and with the provincial economy shrinking. Not good news...
  • Many other events followed such as US trade policy; SA manufacturing, EU Q4 jobs data, UK fiscal policy update, US retail sales, ECB president’s speech on Wednesday; SA local mining, Business Confidence Index on Thursday, and inflation figures out on Friday.
After all of these events, as well as many more, the final picture for the week simply tracked the forecast on Friday almost to a tee, with a bottoming out in the target area of 11.82-11.62, with it following through higher toward R12/$...

Economists will look for reasons as to why it moved here (while we just focused on whether our wave count was playing out...which it was)...

That said, there are worries around #JunkStatus, as land expropriation without compensation has weakened SA's position in relation to Moody's decision.

And everyone has every right to be worried - Moody's, while one of the more favourable agencies toward South Africa it would seem, still has every right to change their mind.

If they look at the fundamentals, and the land issue, they could believe that the strengthening Rand and change of leadership is not enough, and they could well downgrade SA. It would be hard for anyone to argue against that decision.

BUT, what needs to be remembered is that downgrades or negative events do not always result in a currency weakening, as we highlighted in our article published in Fin24 a couple of weeks ago.

This is also shown in our article from last year on a similar topic which shows what happened to Russia and Brazil when they hit effective Junk Status...it makes for fascinating reading!

But that also does not mean that a currency will always strengthen on such news either - it depends where the underlying sentiment is at that point.

Some unsettling news from this last week was Trump's firing of Rex Tillerson.

The Secretary of State is a key position, being the President's chief foreign affairs adviser, and Tillerson clearly as not been syncing too well with Trump - or his own department. The timing of his firing comes with Trump plans to meet North Korea's dictator, which leaves things in a rather precarious position...

...but there could not be a better person to understand what is actually happening on the ground internationally than CIA director Mike Pompeo. And he also seems to work well with the President (let's trust he has a word in Trump's ear about the unfolding communist agenda/land crisis in South Africa).

Also this last week, sanctions were imposed by the White House on 19 Russians for cyber election interference - what will this do for the relations between the two countries?

To get back to local news...one positive from this last week was that SA Q1:18 Business Confidence index has jumped to an impressive 45 pts from 35 pts in Q4:17 ...ala Ramaphosa effect!

And the last moment from the week - Zuma, JZ himself, is finally going to get his day in court. In fact, Maimane says that we will see him in orange overalls!

And despite this groundbreaking (positive) news, the Rand weakened! Who would have thought?

NPA boss Shaun Abrahams says that "there are reasonable prospects of a successful prosecution of Mr Zuma"...

...so it remains to be seen, as the Rand closes out the week just under R12.

The Week Ahead (12-16 March 2018)

We start the week with the Rand firmly on the back foot - having broken successfully through the psychological R12.00 resistance level - in line with our predictions of last week.

This week has some high impact events both locally and internationally...with Friday likely being D-day for Moody's verdict. Such events are likely to be triggers for a move (but in line with the underlying sentiment).

The next few weeks could well take many persons by surprise....

...please don't you be one of them!

This is not the time to be relying on your banker's views, your own emotions, popular opinion, or gut-feel.

This strategy will get you into trouble almost every time...guaranteed

(I know as a cum laude graduate from the School of Hard Knocks)

Get an objective view today of where the Rand is likely to head the next few days, weeks, months and years...

...giving you what you need to make informed and educated exchange decisions, saving you money...with less stress, effort and time.

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Kind regards,
James Paynter

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