Sub R14/$: Is R13.50 to the Dollar next?

Well, another whirlwind week...

But not more so anywhere else than in the UK, as the highly divisive Brexit decision continued to be the plague of the whole continent of Europe.

Officials are leaving their positions.

Parliament is divided.

Confidence in the British PM Theresa May is at an all time low, with calls for her to be voted out ringing in chorus.

She continues to fight, as the British Pound continues to tumble...

The Rand took advantage of this Pound weakness, and enjoyed a 'Sterling' week!

Let's review how it all happened (as per our forecast...)

On Monday, we issued our forecast showing that we expected the market to break into the R14.35-14.60 area over the next few days, before topping out and moving lower.

USDZAR_STU Click to enlarge

The week was filled with big moments:

  • Land Expropriation - the next step has been taken by the Joint Constitituional Review Committee, as they adopted the resoluiotn that Section 25 of the Constitution be amended...
  • Brexit cookie crumbles - this bad dream for the EU just continues to drag on, as the mess of politics and varying opinions threatens to break down the fibre of Europe itself.
  • Oil price collapse - the turnaround from oil has not come a moment too soon for anyone, and this week we got some insight into why and how this happened...
  • Another Zuma cronie ousted - slowly, bit by bit, Ramaphosa is cleaning up the layers of rubbish left behind by Zuma's presidency. This week, another major victory of justice was claimed.

In fact, the week ended up being almost a mirror image of last week.

This time around, the Rand weakened in the first half of the week, as the the Dollar put pressure on the ZAR.

Brexit was dominating the headlines though, as the uncertainty dragged the pound to a 10-day low as the UK might be headed towards a potentially messy “no-deal” Brexit. To make matters worse, the Italy and EU relations are turning sour, as there are concerns over the country's fiscal management - and Italy needs to submit a new budget to the EU.

This is a list of the number of ministers who have resigned since July as a result of the turmoil and differing views:



This poor news meant that after the Pound had initially strengthened in the first half of the week, it fell off the bus from Wednesday onwards, losing over 3% against the Rand just on Thursday!

The Pound's loss was the Rand's gain, as we were back to testing R18/GBP again:



Then there was local news:

Malusi Gigaba, the Zuma-cronie who was a corrupt smooth talker from the day he was elected, has resigned from his position of Home Affairs minister, after lying under oath.

This was fantastic news. The ANC hailed his removal as a great victory - not that they had much to do with it.

Whatever the case, it was another Zuptoid rooted out, and another corrupt official ejected.

And many would point to this, and say that was the reason the Rand strengthened so nicely through the week, or a look at the Brexit disaster unfolding...

...however, there was another group focusing on the major developments in SA:

Land Expropriation.

In short, the Review Committee has decided that Section 25 of the Constitution will be amended...

This is despite opposition from the DA and others, as the ANC and EFF form an unofficial coalition...

Bad, bad news for SA. And yet the Rand strengthened...
...exactly as per our forecast from Monday

So, economists will justify every market move based on whatever event they see fit.

But if you take a look at the big picture, you will suddenly see there are two sides to the coin, and actually their supposed 'analysis' is really of no real value at all.

Other news which dominated the headlines this last week:

  • Oil prices have continued to tumble, which made no logical sense - surely there should be a shortage of oil and rising prices following Iran sanctions from the US? This is what everyone expected... However, markets don't really move like that, as Elliott Wave analysis showed this move was imminent anyway. But, be that as it may, hats off to US President Donald Trump who played a wise hand of poker with the Saudi Arabians prior to the sanctions. Trump had asked the Saudis to up their oil production in preparation for implementation of sanctions on Iran, which they duly did, and they took 24 other nations along with them to hike output and undercut the oil market rally.. Then, Trump played his card and put limited sanctions on Iran which created a major oil surplus and prices have gone into free fall!

  • A very clever move, and one that has had a major impact globally! Take South Africa's petrol price, which has been on a steady increase for months. The AA just released some expected stats for the petrol prices of the next month: a whopping R1.54 discount on petrol appears to be just around the corner! This would be fantastic news for motorists, and if oil continues to fall, this number could increase.

  • Across the border from SA, in the former bread basket of Africa, things are not looking so good in Zimbabwe. So called government bond notes have capitulated in value following the 2% tax Ncube imposed on electronic transactions since October 1. This was in an effort to get on top of billions of dollars of debt which the country is in, but has resulted in everyone moving to cash...which there is not enough of! Inflation has now accelerated to 20.9% in October, up from 5.4% in September

  • The investment conference which took place in Sandton last month still seems to be bearing fruit, as PwC reported that there could be 165000 jobs generated over the next 5 years as a result of the conference. Along with that, there should be some R338bn added to SA's GDP between 2019 and 2024. It is crucial that these supposed firm commitments are actually followed through, else these projections mean nothing...

The Rand really fired on all cylinders to close out the week, as it strengthened all of 20c in an hour on late Friday afternoon.

The market had topped out right in our target area (R14.55) and moved back down to test R14 to the Dollar! What a week!



The Week Ahead (19-23 November 2018)

The Rand has started the week hovering around the R14.00 level as it squares up for the next round of events this week.

There are a few big fundamental events that could provide triggers -

The prime one, of course, being the interest rate decision this week. The MPC have a tough decision on their hands, needing to stimulate an economy that is in technical recession on the one hand, while needing to tame inflationary pressures as a result of a weaker Rand and high oil prices on the other. Between a rock and a hard place really...with a rate hike being suggested, which cannot really be afforded at this time.

And then, be assured, the rumblings on Land Expropriation and Brexit negotiations will continue to create tensions - and division.

And then, of course, there is Trump's ever unpredictable Twitter account...

So, are we looking at R13.50 to the Dollar?

When you look at all the above, how on earth can economists give you any direction for the Rand, by trying to draw some assumptions as to where we are going...

The fact is, you will never get any direction based on news and events.

Instead, we have found the best way is to forget looking at these for direction, and simply listen to what the market itself is saying - though price action and patterns of sentiment they display...

This is what the Elliott Wave Principle (our forecasting methodology) provides, which we use together with a combination of price-ratio analysis, momentum and time-cycle studies to give clients the most likely outcome for the next few days, weeks, months and years ahead.

To see how this could benefit you, simply give our 14 Day Free Trial a shot.

Gratis. No obligations. No card details required.

Get The Latest Forecast For Free Now


To your success~

James Paynter

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