It turned out that it really was the calm before the storm...

As our last Rand Review had it "Rand momentum continues...but for how long?" - this was not an unfounded question, as our charts were suggesting there was no other way but for the market to retrace.

The move down was overextended, without a retracement. And so, all it needed was a couple of nice triggers, and bam! Back over R14/$ we were - in fact a long way over - hitting R14.30 on Friday.

And guess what? Our forecasts showed this too...

But let's get into the full detail...

...and get some more understanding of how human psychology works against us making the right decisions in markets.

 


The week began with our updated Shot Term forecast on Friday, 19 July for the next few days ahead.

With the market sitting at 13.91, the wave count was suggesting we would head a little lower into the 13.91-13.70 target area before we would see the market bottom out and push higher to our second target area of 14.13-14.38...

USDZAR_STU Click to enlarge

A bold forecast indeed after a few weeks worth of relentless Rand strength.

It looked like we were in for quite a week....

And so it turned out, with some big headlines:

  • Eskom in the spotlight - the new bailout from for Eskom has not gone down well with the public, and more importantly, neither with Moody's credit agency...
  • Boris to the fore - Theresa May has finally stepped aside, and there is a new kid in town - Boris Johnson...!
  • Brexit - and with Boris in charge, the Brexit debacle is squarely in the global sights once again
  • Mueller hearing - the much anticipated 'finale' to the Russian collusion in the US election was meant to be this week, with Robert Mueller testifying before Congress
  • Tax increases? - despite the reduction in interest rates, it looks like bad news could be on the way for taxpayers

The market opened on Monday with good momentum on The Rand's side once more, after a very strong couple of weeks.

The USDZAR had been trading mostly beneath R14 for almost 2 weeks, and many were starting to become mildly euphoric, that the Rand was just riding global news without any bother.

This is ALWAYS a warning sign.

Before the change of trend, complacency and euphoria sets in.

But it is impossible to tell by looking at the news when this moment is. Thankfully, we had the Elliott Wave for that...and it was calling a bottoming out very soon.

So, the first half of the week, the calm continued as the market range traded in a tight band of 10c or so.

On Wednesday, we issued another update, reaffirming our count from Friday:

USDZAR_STU Click to enlarge

And the calm continued...until Thursday

And that was when it all changed.

Moody's decided it was time to comment on the Eskom situation which had been playing out in Parliament during the week.

There was an discussion around the R17bn which Eskom had just been bailed out with at the drop of a hat, unbeknown to many...and then that was followed by a proposal from Finance Minister Mboweni to give an additional R59bn to Eskom in funding over the next 2 years.

This did not go down well with Moody's.

They warned that this was "credit negative", as well as the “room to maneuver is extremely constrained,” for the South African government's budget.

And that was the trigger the Rand needed:

An absolute explosion happened over Thursday and Friday as we saw the market springboard 30c higher!

Who could have called it, but the Elliott Wave?

The Rand had ridden bad news over the last month with little to no reaction.

Suddenly this trigger does it...

...why this one?

Simply because, this time (based on the Elliott Wave analysis), sentiment was at an extreme, and the next big move therefore was going to beup ... not down.

Human logic - 0
Elliott Wave Principle - 1


In other news across the globe:

  • In the UK, it was Boris Johnson vs Jeremy Hunt for the British PM. As it turned out, a very comfortable victory for Boris, and this brought a whole new range of uncertainty into the markets. The new PM will have the task of setting the way forward for Brexit, with the 31 October deadline fast approaching. He hit the ground running as he cut 18 former cabinet ministers and promised again to deliver Brexit before the deadlines. Boris has been a Brexit campaigner since 2016 when he made a controversial decision to back the exit from the EU. The warnings are for SA to prepare for the worst when it comes to Brexit.
  • Robert Mueller's testimony was meant to be the crowning moment of the Russian investigation which has grabbed headlines for 3 years now. As it turned out, it was a damp squib, with Mueller providing very little insight beyond what he wrote in his report - and it would appear that Trump and the Republicans are justified in their claims of the "witch hunt" that has been going on for all this time. For now, attempted impeachment of Trump appears to be off the table...
  • The net result of Tito Mboweni's comments on Eskom was not only that there would need to be R59bn in funding for SA's problem child, but that the money was going to need to come from somewhere...(obviously). He ended his speech by warning that the bailout would come at a cost, as government borrowing requirements would increase and SA tax payers would bear the brunt (ouch).
  • In economic news, the IMF (International Monetary Fund) cut SA’s growth forecast from 1.2% to just 0.7% for 2019. Not good signs for a economy severely needing a boost! Over in the UK, the ECB made an unexpected decision to leave rates unchanged, however Mario Draghi gave the market a hint of a stimulus package set for September. Over in the US, GDP increased by 2.1% in Q2 which was less than Q1, but higher than expected...

As for the Rand, Friday saw it extend its losses, closing out the week at a touch below R14.30 to the Dollar, R15.90 to the Euro and R17.70 to the Pound, a far cry from where the week opened...

...and in so doing, wiping out the past 3 weeks of gains.

So, the undisputed loser of the week?

...The Rand.

And the undisputed winner?

...The Elliott Wave Principle!

The Week Ahead (29 Jul - 3 Aug 2019)

For the first time in many weeks, the Rand starts the week on the back foot, as we close off July and head into August (can you believe it?)

And it is expected to be a week of note, with lots of big-mover economic news events which could provide triggers for moves, being among others:

  • US Fed Interest Rate Decision
  • SA Balance of Trade
  • BoE Interest Rate Decision
  • US Non-Farm Payrolls

We have seen last week once again (we seem to be repeating ourselves often, but this is SO IMPORTANT) that these events cannot provide us with consistent direction, but are merely triggers for the underlying sentiment..

...and all financial markets are moved by mass human sentiment.

By analyzing these sentiment patterns using the Elliott Wave Principle (together with our unique combination of momentum, time and price-relationship studies), we are able to come up with where this sentiment is likely to take the market - in smaller and larger timeframes.

And in so doing, answer the following questions:

  • Which way is market likely trending in different timeframes?
  • How far is the market likely to move in that direction?
  • When is the market primed for a reversal?
  • What is the market expected to do thereafter?
  • Being able to answer these questions allows you to make decisions ahead of time, based on an objective outlook...

... not based on gut feel, emotions or rational fundamentals.

So, I trust you weren't caught out by last week's 'surprise' move - if so, you need to look at your strategy and see where you went wrong, as this was imminent.

To get a look at where we are expecting the market to head this week, click the link below.

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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