Rand defies economist's logic to win the week

Well, what an interesting week that was...

These are the types of weeks that make the forex game so interesting, as we see human sentiment playing out over and over again.

It is repeatable, it is predictable...and yet it is impossible to understand logically.

The Rand see-sawed from day to day, as economic and political news provided trigger after trigger.

It left the economists scraping the bottom of the barrel, trying to reconcile all that was happening globally with how the markets were reacting...

...as the Rand caused more and more confusion - and won the day on Friday!

Let's get into the review of how we saw the week playing out.

The busy news week had plenty of headlines:

  • Election countdown - jitters aplenty continue, with the final polls starting concluding showing the progress smaller parties had made, possibly forcing the ANC into a coalition...? We will have to wait and see.
  • US Data - Interest Rates, Non-Farm Payrolls and more kept everyone on their toes.
  • Venezuela turmoil - the next phase of the revolution and uprising took place in the South American country, with rioting and violence aplenty.
  • Oil prices soar - further petrol price increases are on the way, with oil prices hovering around $70 to the barrel.
So, where to start?

The initial part of the week for the Rand was steady going, after opening at R14.37, we saw a gentle move down to R14.27 by Wednesday morning.

This was unexpected by economists, considering that the US economy grew by 3.2% q/q, beating the market consensus of 2.3% for the first quarter of 2019 - Dollar positive news. On top of that, there was poor Chinese manufacturing data.

And yet the Rand maintained stability!

Wednesday was a public holiday, and not many in South Africa were expecting much volume or movement..

Of course, the Rand obliged with exactly the opposite!

Fed chair Jerome Powell made his announcement on US Interest Rates, keeping them steady and unchanged, as well as the expectation being for no more rate increases in 2019.

This should have been Rand positive news...

...and yet the Rand spiked up to hit R14.47 - a full 20c higher!


Confusion reigns for economists, who scrambled to try and claim that this was because Powell said the US economy is in good shape.

Strange, seeing as they have used interest rate increases from the US as Rand negative news whenever a move weaker has been triggered. Do you see how the news can be twisted to suit the outcome?

So, do you still believe the economists...?

Are you still using them to give you direction?


But a headache week for economists didn't stop there...

Let's give one more example in the latter half of the week.

Following the Interest Rate Decision, the Rand pushed even higher to hit R14.59 in early Friday trade before reversing sharply (on the back of no news)...

...and was already down about 10c leading up to the next big data release: US Non-Farm Payrolls.

And then the news hit:

Payroll employment increases by 263,000 in April (vs 190,000 expected); unemployment rate declines to 3.6% - the lowest unemployment rates since 1969!

Incredible. The US Economy was humming.

And the Rand's reaction?

Well, that can only be explained in an picture, as it says a 1000 words:


An incredible pindrop for the Rand saw a more than 20c gain in one afternoon - inexplicable, but very much needed!

And yes, economists will find something to try and explain the situation. "After the fact analysis" is what we call it. Trying to rationalize what has happened with news.

BUT, this can only be done AFTER it has already happened.

Which, if you are an exporter, importer, trader or investor, is already too late!

But take a look at this instead:

If you had followed our forecasts on Wednesday, you would have been anticipating this reversal.

As can be seen from our forecasts below, our USDZAR and EURZAR forecasts which both showed a topping out the next few days.

And that's pretty much what happened:

The USDZAR went slightly above the idealized target area before reversing sharply, while the GBPZAR reversed plumb in the middle of the target area:

USDZAR Forecast from 1 May 2019


EURZAR Short Term Forecast from 1 May 2019


So, what would have worked better for you?

Watching the news and trying to decide direction? Or listening to economists in their ivory towers trying to rationalize a predictably irrational market?

Or using an objective study of the predictable patterns created by human behaviour in financial markets

Here were some of the other headliners for the week:

  • The inflation worries continue for SARB, as Oil continued hovering around $70 to the barrel, despite some retracement. However, the damage had been done, and the Department of Energy has announced a petrol price increase of 54 cents a litre for 93 and 95 unleaded for the month of May. This trend will hopefully be slowing shortly, amid reports of US Oil production surging to 12.3m barrels per day. However, there is still uncertainty over the Iran oil situation, and global attention will remain on Oil prices in the next few weeks.

  • Expectations for the SA elections spread far and wide with wild punts from all sides. The general middle path is that the ANC will secure 50-60% of the vote, with the EFF gaining a lot of ground, but probably not enough to force the ANC into a coalition. However, as we all know with polls (think Brexit, think Trump), what happens on the day can often surprise. As for the effect on the markets, the expectations from UBS and Goldman are that SA assets would grow significantly on the back of a strong ANC win...whether this is a scientific calculation or just a hopeful punt up to you, the reader...!

  • Venezuela erupted into mass protests as the opposition leader (who has been recognized by the majority of nations as the actual President), called for a revolution and takeover from incumbent President Maduro. Maduro has ground Venezuela into the ground, with their currency virtually worthless, inflation skyrocketing and more - yet he refuses to stand down. What with food shortages and more, the people are desperate. This revolution failed, with Maduro maintaining power, for now... but something's got to give...

  • In other news, the S&P500 topped its intraday record of 2,940.91 hit on September 21, rising to a session high of 2 949.52. The S&P 500 is now up more than 17% for the year to date.

  • South African Airways is moving closer to an agreement with lenders to extend R9.2 billion of debt, a deal that would buy the unprofitable state airline more time to restore its battered finances.

  • And Eskom is now supposedly on the up with reduced plant failure over Easter, and Ramaphosa promising that their will be no job losses at Eskom through the transition period to the 3 separate entities...

As for the Rand, it closed out the week around R14.33 to the Dollar, after that incredible recovery, defying logic against Dollar positive news...

...and that was the wrap!

The Week Ahead (6-10 May 2019)

After a hectic week last week full of high impact events and logic-defying moves, he head into a week with national elections locally and US Retail sales and trade balance being the events to watch for potential triggers.

But I trust by now that you have learnt not to think the market reacts rationally to any outcome - and that Rand-positive news will always drive the Rand stronger - and vice-versa.

Last week was the perfect example.

To quote from last week, "...if the current wave count plays out, the Rand's moves over the next few days and weeks could take many by surprise (as can be seen from Friday's update)...

...this is certainly not a time to manage your Rand exposures without a proper roadmap and a strategy (plan of action), so that you can prepare and take action at the right time, instead of either:

  • Having the market move against you before you have taken action.
  • Doing something too early and missing out on the market moving in your favour.

As you well know, both the above can leave you with regrets, frustration and anger...not to talk about a poorer bank balance.

That is why I want you to be prepared!"


If you heeded my advice last week (to take our 14 day free trial), you would not have been caught unawares.

And if you did not...

...well, count that as school fees

... but don't let yourself be caught again!

Sign up today using the link below and get our very latest roadmap for the Rand for the next few days, weeks and months ahead against the Dollar, Euro and Pound, based on the latest Elliott Wave count.

And get our bi-weekly updates for the next 2 weeks. All on us... Gratis...

Get Immediate Access Here

I look forward to being of service to you - and to saving you money, time and stress.

As always, appreciate your feedback and thoughts.

To your success~

James

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