Volatility aplenty, as the Rand strengthens strongly

Wow, what a week!

There is certainly a reason that the Rand has got the nametag of the world's most volatile currency - with swings high and low making it a nightmare for most who deal in foreign exchange.

This week was no different. We saw big highs and lows, with not much time in between.

Volatility is nothing new to us, but considering the calm there has been since the start of 2018, with a range of around 80-90c in over 4 months - this has been quite a bump back to reality for some.

When things look rosy, you know trouble is coming.

Well, for this week at least, the Rand was on top of the volatility.

Back down below R12.20 in no time, after touching over R12.70.

Plenty to review, so lets move on...

Fridays outlook for the next week or so showed two possible scenarios, with the preferred outlook being for a move up to the 12.80 to 12.92 area.

USDZAR_STU Click to enlarge

Over the following 7 days, we had some major events:

  • Trump pulls the plug on Iran - in a controversial decision, Trump pulled the US out of the "horrible one-sided" Iran Nuclear Deal...this is going to cause (and has already) some serious ripples through the globe
  • ...including oil prices - they soared over 2% in less than 24 hours, after Trump's decision, taking it back over $70 a barrel for crude oil...
  • Ramaphosa answers questions in parliament - a rather hectic session, where Ramaphosa lost his cool and the fated Land Reform question came up again...
  • North Korea & USA - is the peaceful meeting and future really a reality? It certainly seemed so, as talks progressed, and promises became actions...
  • Rand goes for gold - an incredible run saw the Rand roaring to under R12.20 - what a turnaround!

The major talking point for the week, was once again offshore...

Trump made the expected decision on Iran, and as expected, sent the media into a frenzy.

It was also a trigger for oil price volatility, as it initially dropped, and then pushed much higher - back over $70 a barrel.

The decision made was on the much debated Iran Nuclear Deal - an effective treaty of sorts between 7 major countries (US, UK, Russia, Germany, France China, EU and Iran), that basically said that if Iran were to stop certain activities relating to nuclear weapons, nuclear related economic sanctions against them would be removed.

And so, the agreement went into effect, under President Obama.

However, it had serious flaws.

Even as the agreement was being put together, this was said by Iran's deputy foreign minister: "We have told them [the P5+1 world powers] in the negotiations that we will supply arms to anyone and anywhere necessary and will import weapons from anywhere we want and we have clarified this during the negotiations,"

Over the years, Iran has continued to produce countless examples of hate speech against the US, with "Death to America" being a common term.

Along with that, certain Iran backed missile related activities continued to go on in Iran and surrounding areas like Syria...

And so, Trump decided that enough was enough - it was time to take action.

And who would have expected anything other, than for him to pull out of the deal, as it allowed the US to reimpose sanctions on Iran and countries who support them. We have just seen an example of how this can work, with North Korea's Kim Jong Un agreeing to make peace with South Korea and the USA - which would appear to be directly related to economic sanctions, bringing the country to its knees.

The difference this time round?

The countries who were originally in the agreement are still there - and have not yet come out in support of the US either.

This will make it a lot harder for Trump and the USA, to squeeze Iran in the same way as they did North Korea - but we will have to see how far the US is prepared to go, in sanctioning those who do business with Iran...

The key part of this whole Iran debacle, is that Trump is showing to North Korea BEFORE his meeting with 'Little Rocket Man', that he is not going to sign another weak deal which threatens global peace, due to its inability to hold countries accountable.

This news initially did not bode well for the Rand, as it weakened on the back of it. However, just when it looked as if we were going to see the market break above 12.73 and head to the expected 12.80 target, it reversed....sharply!

And by the end of the week had touched a healthy 12.18!

A spectacular turnaround from the Rand, in just a few days, as can be seen below.



Some of the other talking points which surrounded the week on the local side, was the continual land debate, as Ramaphosa took questions in parliament, and as always, this was a major talking point.

The latest update from the land committee is that they have received over 140,000 submissions, and "faces a nightmare" trying to plan for the hearings.

The volume of submissions shows how this is a very hotly debated issue.

On the global outlook, in view of the meeting between Trump and Kim Jong Un, North Korea released three US Citizens who had been detained for years.

Is this a sign of good will and intentions from North Korea, or is it a bit of smoke and mirrors? We will have to see...

Closing the week out, the Rand made its way as low as R12.18, before retracing to the mid R12.20s...a remarkable run after weeks of being on the back foot.

And to finish the week, here is a great article from Clem Sunter - always insightful and interesting...

The Week Ahead (14-18 May 2018)

Monday has seen the Rand trading in the mid to late 12.20s with no real clear direction.

This week doesn't have a lot of high impact events, but that does not mean that the Rand will be any less volatile.

This week is a reminder that our forecasting system is not an exact science, but a case of putting the probabilities in your favour - through giving a view of what the market is expected to do, based on a combination of Elliott Wave, price/time ratios and cycles and momentum studies.

But sometimes the market reacts differently, and it is then time to then look at what is the next best fit wave count.

I think of it pretty much like a weather forecast - it is not right all the time, but certainly gives you a much better idea than just going outside and staring at the sky to see what is going to happen tomorrow or next week.

Join us to see for yourself....

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Kind regards,
James Paynter

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