The Rand has had to weather a global storm over the last few weeks perhaps only rivaled in recent times by the 2008 financial crisis...
We live in interesting times, and the financial world is clearly sitting on one giant powder keg.
And that uncertainty is starting to show cracks in many major currencies, including the Rand.
This week was one where trade was volatile and indecisive, trading sideways but with 1-2% swings in value each day...
...a investor's and business man's worst nightmare!
But there was plenty more during the week to consider - let's get into the full review.
The key events were aplenty, as the week was filled with big events:
- Trade War - the US-China spat which so many thought would be over in a few months continues to drag on, and now tempers and emotions are flaring higher than ever before
- Global recession coming? - the warning signs have been there for months. Now, the cracks are beginning to show
- Hong Kong crisis - as if China did not have enough to deal with as it stands, Hong Kong is in its 11th week of protests with no sign of letting up
- Argentinian Elections - surprise results sent the Peso tumbling Southwards...
The Rand opened well clear of the R15/$ mark with all momentum fighting against it having lost 3.1% in the week before...
...it really had been a crazy 2 weeks for the ZAR, and it did not look like it was going to end anytime soon, as the week opened straight into the news of recession warnings across the globe.
To name a few, here are some of the big warning signs:
- China reports weakest growth in industrial output since 2002
- Germany's economy shrank as exports slumped
- US and UK bond markets showed their biggest recession red flags since the 2008 global financial crisis
- The US's 10 Year Treasury Bond market fell to a 3 year low, and the 30 year rate to a record low
And that was just scratching the surface...!
Couple this with the Trade War, and it really does make rather a messy outlook.
Trump is sticking to his guns on the latest tariffs, although they have now been delayed through until December - giving consumers some temporary relief for the holiday season.
However, this was not enough for China, as they said that "China has no choice but to take necessary measures to retaliate." It remains to be seen what will happen next, but this one is far from over ... and the global uncertainty too.
For the first part of the week, the Rand continued its highly volatile ways, trading in violent, short bursts:
To give an idea of how volatile it has been, by Thursday the previous 7 days had had a daily ATR (Average True Range) of 2606 pips - that's over 26c per day!
There were plenty of other headliners, such as:
- The Hong Kong crisis has been dragging on for 11 weeks now, and is now showing any signs of stopping. To make matters worse, this last week the protestors went into the Hong Kong airport and shut the entire place down for 2 days - all flights cancelled, and mayhem and violence aplenty. This is contributing to the Chinese worries at the moment, combined with the Trade War. Beijing have been sending veiled threats of military intervention, but Hong Kong is clearly indicating they are not prepared to succumb to a tyrannical Communist regime. Trump has suggested a personal meeting with Xi as to how to resolve the situation...with the Trade War as one of his cards. For all that Trump says about Xi, the big question is, how much can he be trusted, given the Chinese Communist Party's (past and present) history of gross human rights violations and suppression of any resistance?
- And as if there was not enough global turmoil, politics in Argentina was in the headlines as a surprise election result triggered a total capitulation of the Argentinian Peso. If we think the Rand has had a rough time of it, then we need to take a look over that part of the globe, as the Peso dropped about 30% in value in one day! And with that, the Rand managed to wriggle its way out of being the worst performing EM currency.
- Locally, all eyes are still on Eskom and what is going to come from Moody's in November, which is when the next credit review is due. Expectation is that the market has already priced in a downgrade to #JunkStatus, but this remains to be seen. It is really a guessing game to predict whether Moody's would, and our best hope when it comes to predicting what effect it will have on the Rand, is to stick to sentiment analysis using Elliott Wave and other tools, so that our emotions are out of the decision making process.The IMF has commented that "SA does not need a loan but it can do much better on growth policies"...
The Rand enjoyed a quieter Thursday & Friday as it traded sideways for the most part, and closed the week out around the R15.30 mark...
...however, in urgent need of a boost with increased petrol and consumer prices incoming should the weakening trend continue. And that was the wrap!
The Week Ahead (19-23 Aug 2019)
So as we come off a a week with the highest rates seen in over 3 years, where to from here?
The week ahead does have a few economic data events that could provide some triggers for Rand movements, among them being:
- SA Inflation Rate
- FOMC Minutes
- ECB Monetary Policy Meeting
But the big movers in terms of news triggers will likely come from the unfolding Trade War and the Hong Kong crisis on the global front, as well as anything on Eskom and Moody's locally.
And of course, that doesn't mean that the markets need any news at all to move!
We are certainly at a juncture where a sense of anxiety, panic and despair has set in...
...but in one way that is a good thing.
And why is that?
Well, in terms of Elliott Wave Principle (the study of human behaviour in financial markets), this normally happens at points of price extremes...
...which means we are very likely close to a short term top at the very least, if not a larger degree.
As we mentioned last week, we have a couple of possible Elliott waves counts playing out at present, and the next few weeks will be critical to determine whether the preferred or alternate counts play out, as there are some critical inflection points to watch.
We have updated our waves counts based on last week's move, and the next few weeks will be critical to determine whether the preferred or alternate counts play out.
To get a look at what we are speaking about, use the link below to get access to our forecasts for the next 14 days.
No card needed. Gratis!
(You don't want to regret not having done so this time next week...)
Look forward to hearing from you.
To your success~