What a turnaround week for the Rand, as we saw a HUGE pullback against all the majors!
This could not have come a moment too soon for consumers and importers alike, with some good news in amongst the ongoing (now extended) lockdown.
It also provided a bright spark in amongst the slew of economic results showing the gravity of the Covid-19 situation.
The question is whether a top is now firmly in place, or if we can expect to see a push higher again...
...our forecasts are watching some crucial levels, so I would really suggest you hop on a Free Trial of our USDZAR, EURZAR and GBPZAR forecasts by clicking here.
Now let's get into the full review!
To start with, here was our forecast from Friday before the week began (3 April 2020), giving the pathway for the days ahead. It showed us at R18.99, with an expected topping out in a target area of 18.90-19.90 ...
...a big target range, I know, but that was the potential based on several Fibonacci wave relationships and the moves we had already seen the prior 3 days - all of R1.30!). See below the forecast - click to enlarge:
We were certainly in for another interesting week of market movements!
And here were some of the biggest talking points from the 5 days:
- Record unemployment - the US continued to be rocked by unemployment jobless claims, as the peak of job losses was still some way away, with numbers already nearing 1929 levels...
- Covid-19 cases closing 2mil - all the while, the worldwide exponential curve of the Coronavirus continued despite government's best efforts to squash it
- More stimulus packages - the only answer that Government's worldwide have to the economic ruin is to pump stimulus packages at top speed...
- SA GDP losses - SARB issued a warning of just how bad things could get if the current economic situation continues
The start of the week was a miserable one, as Fitch had downgraded South Africa further into Junk to a BB rating, while forecasting a 3.8% contraction for the South African economy in 2020.
Along with that, they cited no clear path to stabilising the debt situation.
The Rand didn't like this, and we saw the market jump to R19.34 in the hours after the opening...
...but that was as high as we went the whole week, as we saw a major turnaround just on Monday which took us back to a low of R18.52 by the close of the day!
Some relief from pain, but there was much more needed after the last couple of weeks we have had!
While some did see the Rand as oversold, there was NO clear indicator as to why the market should turn. Logic said (as well as many supposed economic analysts), that R20/$ was inevitable during the course of the week after all the bad news.
But the Elliott Wave Principle (per our forecast from Friday) had called it again...ahead of time - and without looking at any fundamentals or news.
And so we saw an unwinding of the Rand over the coming days, taking us as low as the 17.80s...
But it was bump back to reality on Thursday, as Ramaphosa announced an extension of the lockdown by another two weeks...which could not have been worse news for business.
Some encouragement for SA is that over in Wuhan, life appears to be slowly heading back to normal with China lifting the 76-day (yes, 76) lockdown. The news bodes well for some of the worst hit nations, where it is now rumoured that both Italy and Spain have seen the peak of transmission rate.
But few businesses are able to sustain a lockdown as long as that...so we will have to see what steps Ramaphosa takes.
Right now, the SA government is now on a mission to get financing to assist with the debt load and support the healthcare sector amid the pandemic, with potential applications to the IMF, World Bank and BRICS on the cards.
Even major chains like Woolworths were expecting a 20% reduction in year-on-year profits BEFORE the extension came about. Something like this may just be taking a disaster to a catastrophe for them and many others.
And then in other news:
- The Reserve Bank presented its bi-annual monetary policy review this last week, painting a dismal picture of the economic outlook for the country. The SARB cut its growth forecasts for 2020 and 2021 due to the impact of the Covid-19 pandemic and the current lockdown. The economy could contract by as much as 4.0% this year and is unlikely to grow by more than 1.0% in 2021. The central bank further expects up to 370 000 jobs to be lost and 1 600 business insolvencies. The fact of the matter is that a global recession is upon us, and while we are not sure how significant the potential fall-out could be. The 2 week extension will only amplify this...
- And just to prove the reality of the global recession, the latest stats for the US initial jobless claims came out - another 6.6 million claims in the last week, making a total of nearly 17 million in just 3 weeks!
Of course, this figure is artificially inflated due to government-enforced shutdown and recommendations to file for unemployment benefits, and we will have to see the real figures once the economy starts its engines again, but nevertheless this is a staggering figure.
The unemployment levels at the peak of the Great Depression were around 25% of a population, which was in 1933 - fours years after the initial 1929 stock market crash. If things repeat themselves, this has only just begun...so hold onto your seats. We are in for quite some ride, with the virus and lockdown still due to run for some time yet.
As for South Africa, there are already the issues with already having record unemployment, and now the potential to go exponentially worse in the coming days.
- In better news, Eskom announced it does not need more State funding right now, and production has been under control with the lessened demand over the last few weeks.
On Friday, we saw the Rand trade quieter as markets globally took a break over the Easter weekend.
By late afternoon around the SA close, we were trading a around R18/$, as the Rand ended another eventful week...but this time on top (sort of)!
The Week Ahead (6-10 Apr 2020) |
There is so much more to cover, and yet so little time...
So, what we did was a webinar for all our clients on "The Global Crisis Has Begun - Where are we heading?"
Some of the points we covered:
- Currencies - what next after a crazy few months for the global currencies?
- Stock Markets - are we going to see a further collapse or a recovery?
- Stimulus Packages - will they save the global economy or worsen the situation?
- Gold - is it a safe haven to be trusted in times of financial crisis?
- Cryptocurrencies - where does Bitcoin and other cryptos fit in?
- Rand - what are we expecting for the Rand over the next few months and years?
And much more...
Here is the link to the replay
Look forward to hearing your feedback!
To your success~
James Paynter
