Trump, Russia & Syria: A Tough Test for Emerging Markets

Global tensions have continued to simmer this past week, reaching near boiling point...and then some after the week closed...

A horrific chemical attack in Syria sparked it all off. Followed by tough language from the USA, pointing figures very clearly at Russia & Assad, the Syrian dictator.

Russia claiming no wrong doing - blaming rebel forces.

The US saying that missiles are coming to Syria.

Russia saying they will shoot them down.

And we were left with the financial world caught in the middle of immense tussles which are going on between the main global players. The Rand endured a tough week amongst the politics and economics going on around it, ultimately holding stable into the close.

We reflect on what transpired, and what to expect for the coming week...

...please do join us.

First things first, our forecast on Friday gave some expected direction for the week ahead.

With the USDZAR hovering around R12 to the Dollar, we were expecting it to push slightly lower, before rising above R12.14...

USDZAR_STU Click to enlarge

And we were treated to another feast of global events. To name just a few:

  • Syria crisis - a gruesome chemical weapons attack over the previous weekend had set the world stage alight with threats, blame-games and horror at what happened.
  • Trump and Russia - tensions become ever more strained over Syria, as Trump threatens imminent military action...then puts up smokescreen.
  • Iran Rial - it lost a crushing 20% vs the US Dollar in just 2 weeks. And then, the Iranian government stepped in...more on this later.
  • Rand endures - despite the struggle of emerging markets generally, the unlikely hero has turned out to be the Rand, as other markets tumble.

While the previous week had been all about the Trade War, this last week's talking point was decided before the week even began...

...stories began to emerge on Saturday/Sunday that something was going on in Syria.

With the rebel controlled areas being slowly squashed into a corner, their cellular signal is extremely limited. This means what news does come out of there is sparse, or from President/Dictator Assad's regime - which likely makes it false information.

Anyway, eventually the news became mainstream. There had been another inhumane chemical attack.

What fired off from this was a furore of note:

  • Trump condemned President Putin, Russia and Iran saying that "there will be a big price to pay" for this.
  • With information being limited, Russia and the Syrian government jumped in quickly trying to say that the attack footage which had gone public, was staged, fake news to hurt them.
  • Russia also says they will shoot down any missiles that come Syria's direction
  • Trump tweets: "Get ready Russia, because they will be coming...!" The Rand did not take this news well
  • And then follows that up with a vague message, saying he did not say when the strike would be. But public opinion was that it was being seriously considered...

So, what did this mean in terms of currency movements?

It can sometimes be too easy to get caught up in the politics and economics...but what is clear is that this is creating volatility for the US, and really the whole world. It would benefit no one economically to see the USA & Russia/Syria/North Korea go head to head...

...however, it is clearly building up toward a confrontation of sorts.

Overall though, the Rand did not have the worst week despite the volatility. It moved lower as per our forecast, before touching over R12.14, as we predicted from Friday the 6th's forecast.

While there was fairly limited local news this week, some more headaches for Ramaphosa had arisen, as there were public sector wage negotiations going on. Union was demanding CPI + 3%...and that was going to be a tough situation for Ramaphosa to handle.

But despite this, the Rand had an excellent week, as it officially became less volatile than other major emerging markets, such as the Mexican Peso, Russian Ruble and Turkish Lira. It has maintained a fairly stable period since December, and has been said to be the new haven of emerging markets...

Some great news which will allow the dust to settle globally, was that on the China-US front is that there will be a 60-day extension in the negotiations period before tariffs are implemented...this will at least allow both parties to think, carefully and clearly, before taking action...

...maybe there is still a chance for them both to back off!

Other news from the week, was that the US dollar index (USD vs a basket of global currencies) has weakened by 14% since December 2016 (the date US started raising interest rates)…interesting stuff!

And an interesting situation developed in Iran, as their currency the Iranian Rial, lost all of 20% of its value vs the USD in just 2 weeks.

This was bringing nothing but havoc for local businesses, with some saying that they had given up operating at all. They simply were not able to manage with the currency being a vastly different worth from start to finish of each day.

So what did the Iranian government do?

The ultimate knee jerk reaction.

They pegged the currency value against the USD.

We believe such a decision will have repercussions.

You cannot fight the market - eventually it will win, no matter what you mat try.

Take Switzerland. They tried that in 2011 pegging the Franc vs the Euro...

...and here's our article on how that one ended...nothing short of a DISASTER!

While not a smart decision from Iran, you can be sure the West will watch this with interest....the sooner their rogue regime is brought down by any means possible, the better...

Lastly, some Rand news...after the market had made a high in our target area, it had broken lower - sharply, with many expecting further Dollar weakness.

However, our analysis showed a different picture, with a reversal expected in the R11.95-11.90 area, before rising upward of R12/$ again. Below is our forecast from Wednesday with the expected trend for the days ahead...

USDZAR_STU Click to enlarge

And this was exactly what followed, as we saw the Rand make a low of R11.92, and head back over R12 to close out the week at a touch under R12.10...

...overall, a solid week from the Rand, considering the tough global conditions.

And then, it happened....

...well after the market closed, the White House announced that a joint air strike by the US, UK and France had been made on Syria, destroying Assad's means of producing chemical weapons...

...wisely down in the early hours of Saturday morning to minimize fatalities.

The Week Ahead (16-20 April 2018)

Monday opens with global tensions simmering in the wake of the Syrian strike - and Russia warning of consequences for the attack...and China flexing its muscles with live fire drills in the Taiwan Straits

So, not a restful start for the week...but what does this all mean for the Rand?

There is plenty to distract and cause panic decisions. But such decisions are more often the wrong ones.

We will instead keep our eyes on what the sentiment patterns themselves are telling us - and as can be seen from the above, have kept us and our clients ahead of the game more often than not.... can be seen from last week's email from Gerhard, a trader.

"Hi guys

Im really astonished at how accurate the last 2 weeks predictions have been It helped me regain almost all my losses of the beginning of the year when I tried my own predictions Your charts now form the basis of my trading strategy - I will share my trading logbook some time in the future if it becomes something to be proud of

Have a great day
Regards Gerhard"

But don't take our word for it. Or Gerhard's. Try it out for yourself. Gratis.

Get The Latest Forecast For Free Now

Kind regards,
James Paynter

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