Another week passes, as the Rand gains momentum!

It was a week which again proved the inaccuracy of looking to events for market direction, as economists were left dumbfounded by the Rand's 'strange' moves...

...when in fact, they were almost exactly as per Elliott Wave Forecasts.

This was despite what should have been momentum against the Rand - who would have thought...?

It is worth seeing what insight we can gain from understanding how human sentiment drags us in the wrong direction EVERY time we involved with financial markets.

Let's take a look at the finer details.

On Friday, 12 October, we issued our Short Term Forecast for the next few days ahead. The USDZAR market sat at 14.5227 to the Dollar, and our most likely trend being a downward one, targeting 14.23-13.97.

USDZAR_STU Click to enlarge

During the course of the week, there were plenty of noteworthy events:

  • VBS Mutual looting - the shocking expose continued to unfold, as the company began to really suffer as a result of the scandal, with workers being laid off, left, right and centre.
  • Moody's Non-decision - as expected to some extent, Moody's did not make a definitive call on SA's credit rating, but did release some kind of statement, which carried good news...
  • SARS close to collapsing - due to budget cuts, SARS is struggling to 'keep the lights on', and general chaos has resulted in the entity...
  • Saudi Arabia Controversy - this dominated headlines globally, as the supposed assassination of a journalist who resides in the US, took place inside the Saudi Consulate of Turkey, 3 weeks ago...

News which began the week was Moody's...

...but not that there was a decision on #JunkStatus, but in fact that there was no decision.

This was taken in a positive light, as it signaled that the agency was satisfied with the current rating, with a stable outlook. On the whole though, we were still being left in the dark, but this time around, the uncertainty seemed to help the ZAR.

The Rand firmed 20c, taking it well below R14.50/$...

...and that was before Tuesday, when Moody's released a "research report" on South Africa.

This report detailed some positives and negatives:

  • Weak State owned entities are a grave concern
  • Structural economic bottlenecks are limiting growth
  • Policy uncertainty from social/political divisions
  • SARB is a strong organization, helping credit strength
  • Also a well capitalized banking sector, and minimal foreign currency debt

Again, the Rand took this news well, despite a fair share of good versus bad news...

Further strengthening saw R14.20/$ broken through, with excellent momentum building off of the previous week's turnaround.

Stock markets also enjoyed a good week, following earnings from giants such as Goldman Sachs and Morgan Stanley - the JSE closed stronger on Tuesday, as well as a number of other markets.

What also helped the ZAR get on top of the EUR and GBP was the ongoing Brexit talks. They do not quite seem to be going as planned, as rumours are suggesting that the deal has failed over the Northern Island issue. The situation just continues to get messier, and it is a real situation that the EU and UK are struggling to work out.

That was not even half of the headlines from the week though:

  • On SA soil, the VBS scandal continued to worsen, as they had to lay off nearly 100 workers - just 26 people behind, made up of two general managers, admin staff and a collections team. Following the R2bn fraud, the company has been brought to its knees...
  • The global controversy dominating headlines did not get any quieter this week, as more details emerged of the gruesome killing of the Journalist in the Saudi Consulate of Turkey... However, this was all just speculation for now, as no evidence had been made public by Turkish officials - which would be a major diplomatic issue if they did, because it would show that they are recording the Saudi's own Consulate, without them knowing! For this reason, it seems the Apple Watch story was made up, to try cover up how Turkey is recording Saudi Arabia, in their Consulate. In the middle of this whole diplomatic issue is the Oil price, which will be affected if there are United Nations sanctions, for example.
  • Turkey and US relations are something which has benefited from the Saudi controversy, as they seem to have 'made up', giving some reassurance to investors in emerging markets, and helping the Turkish Lira to have some stability. As this is a currency which is closely watched by emerging market traders and investors, this was good news for the ZAR, as the USDTRY is back below 6 to the Dollar. It is now strengthening closer to 5.5, coming off strongly from its financial crisis just a few weeks ago - when persons were suggesting it would fly to over 10! Never ever follow the herd...!
  • News emerged as to the finer details of SARS this last week, that the tax institution was 'on its last legs', to use a common phrase. The company was struggling to keep the lights on, and general chaos seemed to be widespread. It is crucial that companies like this keep going, for a country to function normally, and right now, that is under threat...
  • of the world's most controversial subjects. This past week involved multiple talks on the subject, and just when it seemed that they were getting somewhere, the deal as regards Northern Ireland was rumoured to fall flat. There is still a large element of unknown as this whole situation plays out, and we will continue to watch closely - for now, the EUR & GBP are suffering as a result of the uncertainty...

The Rand maintained a stable range up until the end of the week...

...and then it all went a little pear shaped on Thursday afternoon, as the market shot to touch just below R14.50/$!

The market did pull back some ground to close around R14.40 to the Dollar, but it was really setup for a grand finale of a week!

The Week Ahead (22-26 October 2018)

The Rand has started the week on the front foot, strengthening down to R14.30.

This is a start that was really needed, in view of the likely tumultuous week ahead, where Tito Mboweni will be making his first mid-term mini budget speech... is going to be a difficult speech to make, and we are going to have to see how the Rand will trigger from the event.

However, we are not going to get too caught up by the speech in terms of the Rand.

Our forecast for the week was issued earlier today, giving the prediction for the next few days. On Wednesday, that will be followed by another updated forecast.

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To your success~

James Paynter

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