It was quite an enterprising week for the Rand as the local currency continued to keep the pressure on the Dollar...
It was a big week for events too, with SARB exerting some authority, cryptocurrency grabbing some headlines, Zuma in the dock and much more...
...and all in all, a solid week for the ZAR - to round off a solid few weeks!.
So let's get into the detail!
Before the week began, we issued our forecast with the expected trend for the market being down lower to head into the R13.87 to 13.70 area before we would see it bottoming out. We opened the week at R13.9784, so the Rand still had some room to run before we would see it heading weaker...
- SA Interest Rate - this is decision that many have been waiting on to see if there can be some respite from the rising interest rates over the last couple of years...
- SARB independence - poor SARB Governor Kganyago continues to be under fire from the ANC...!
- Chinese growth - the trade war continues to be a thorn in the flesh of China, as further stagnation of the economy was seen
- Iran/US tensions - the next step toward war between US and China, as the US downed an Iran drown...
- Project Libra - Facebook's latest venture has been making waves in the cryptocurrency world...
After a closing the previous week out sub R14/$, it was the Rand on the front foot for once heading into Monday...
...and this meant that by midday, the market was trading at under R13.90!
With a big week ahead, and an MPC Interest Rate Decision on Thursday, and the Rand was going to be in the thick of it.
In China it was a blue Monday, as Chinese 2nd quarter GDP was ‘out for a duck’, when the figure came in at 6.2% (YoY) which is the lowest figure on record. The Trade War has done real damage to the economy, and was not helped by comments of Trump's, saying “We have a long way to go as far as tariffs where China is concerned, if we want. We have another $325 billion we can put a tariff on, if we want."
At least discussions continue to take place between the US & China with a view to a resolution, but we remain on shaky ground. And so we go...
The focus the whole week was leading toward Thursday, to see what SARB would do - and what the Rand's reaction would be.
Economists across the board were saying with absolute certainty that the Rand would weaken against all currencies should the expected rate cut actually come through...
...and come the rate cut did, exactly as expected...
...as for the market...well, not quite as expected!
The Rand flummoxed all economists' predictions once again!
It did not make logical sense in fundamental economics, and yet it had happened - proving the importance of keeping our emotions out of this game.
Remember, events do NOT give market direction, and only provide the market with triggers to act based on the underlying sentiment - which was Rand-bullish!
Again, I repeat: Events are triggers - not direction givers!
This is shown in this piece of a webinar I did a while back, which shows exactly how we can understand emotions in markets.
And the Rand reaped the benefit this time, trading close to R13.80! (right in the middle of our forecast target from Friday)
In other news:
- Libra is Facebook's latest attempt to restore calm to its business, and to take payments global. Libra is a supposed cryptocurrency (although completely different to Bitcoin), and this week they came before United States Congress with their plans...and it did not go all that well. Lawmakers are clearly opposed to the idea of a currency which is mostly out of the control of the government suddenly being made available to between 1 and 2 billion people. If this does ever come into reality, the exposure of cryptocurrency to the world will be incredible!
- US and Iran tensions have been bubbling for the last while, ever since the new sanctions placed on Iran, and Iran's shooting down of the US drone, as well as breaking free of the nuclear deal of 2015. This week, things stepped up a notch as a Iranian drone was nearing a US ship, and refused to stand down, resulting in the US engaging and downing the drone. Tit-for-tat...but tensions continue to rise. To make matters worse, Iran then seized a British tanker in the Strait of Hormuz... What next?
- SARB still continues to lie in a state of uncertainty thanks to Ace Magashule, who again referenced the nationalization of the Reserve Bank this last week. His continued pushing of this clearly has a Communist agenda behind (read the Freedom Charter) - and it continues to bring in investor uncertainty! So unnecessary to do this to one of the best institutions currently operating correctly in the country.
The Rand lost some ground through to the close on Friday, but still closed in the good for the week - in and around R13.90 to the Dollar...
...it had certainly been an interesting few days!
The Week Ahead (22-26 July 2019)
This week sees several economic events which could provide triggers for the the next few days, being amongst others:
- SA inflation rate
- ECB interest rates decision
- US trade balance
And then, of course, continued global tensions surrounding the ongoing trade war and US/Iran tensions also will be in the headlines.
We have seen (once again) last week that these events cannot provide us with consistent direction, but it is important to know when they are expected, as they can be triggers for significant moves.
When looking for direction, we instead turn to the Elliott Wave Principle, which is the study of irrational yet predictable human behaviour in financial markets.
By analyzing these sentiment patterns 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.
If our latest analysis is correct, we are in for an interesting couple of weeks, which will likely take many by surprise.
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To your success~