It's been a crazy couple of weeks for the ZAR, both on the home front and abroad.
Events, scandals, surprises and shocks have come thick and fast...(and they aren't showing any sign of stopping just yet)
People have been expecting drastic market moves...but they haven't come...?
...despite SA GDP Q1 figures showing we are in recession
...despite FBI Director Comey's testimony causing more controversy than clarity
...despite UK elections ending in rather a shock 'defeat' for May as she lost majority
Surprisingly, the Rand held it together. And after a week which had just about everything in it, it pulled out with few scars to show from a week which had more bark than bite.
So why did this happen?
It is tough to say...
...but let's take a look at how it happened, and see if we can decipher it.
How It Happened (5-9 June 2017) |
The week 'began' with our forecast on Friday evening, giving us a very interesting view into the week ahead...
The outlook (see below - click to enlarge) showed the market at a critical level of 12.8157/$, and a split probability for the two possible counts. The bias was for a move upward into the 13.31-13.47, but with a significant chance of going lower (30%) into the 12.63-12.45 area before bottoming out...this next week was gonna be a biggie!
Click to enlargeOnwards to Monday...
The lay of the land starting the new week was very different to the week before. Fitch and S&P had kept SA’s ratings unchanged, Non-Farm Payrolls had gone off well, and yet another horrific attack had occured in London on Saturday night.
For this week, we had some major events upcoming - SA GDP Q1, UK Elections, FBI Director Comey's testimony and Moody's Credit Rating Review which was expected on Friday.
Action was just a step away...
The market once again opened a little than it had closed on Friday, starting the week in the mid R12.70s.
And from the word go, the Rand was up and off!
From opening very early on Monday morning, it had already lost almost 10c by the time business opened for the day in South African time...
...and then the tide turned!
In just 4 hours, the market ran from R12.84 to 12.68!
This was its best rate we had seen since March - quite some achievement!
The market then proceeded to consolidate its gains, retracing back over R12.70 to the greenback. It had been a turbulent little period for the ZAR, and it did not look like it was done yet! After hours, it strengthened even further to R12.66/$...
...where to from here...?
Tuesday. Was there going to be a calm in the markets?
Or was the run going to just keep going...?
Our bet was on the latter.
With enough triggers to make anything happen, chances were that the choppy waters would continue.
And it sure did.
Tuesday brought South Africa's GDP figures for Q1 of 2017 - a very closely watched event...
...and rightfully so, as it really gives deep insight into a country's economy.
The insight...was not quite what South Africa wanted to see. A gross domestic product contracted 0.7%, indicating that we are officially in a recession as it follows the previous decline of 0.3%...this was not good news, and it surely was going to have an effect on the investors once again (as if they did not have enough already to put them off investing in South Africa!)
The Rand took the news...about as badly as it could possibly have done.
After such a good period of downward acceleration since the start of the month of June, it proceeded to lose over 20c in a couple of hours...
...but strangely enough, the timing of the GDP announcement was right at the end of the Rand's upward spiral, and about 12c of weakening had come before the GDP was even announced...
...anticipation?
Coincidence?
Who knows...
The most important thing to keep our eye on was the going rate, and by 2pm, the market had crashed to over R12.89/$!
Once again, that feeling of hard earned cents of profit being quickly cut to nothing at all...
And not only that, but a lasting effect left on the market.
Which was what we saw once again this week, as post that horrific spike (see above), the market proceeded to play vertical ping-pong for the next 48 hours.
But just to fill you in on what happened during that time, lets just review how it went...
The market jumped back and forth for the remainder of Tuesday, gaining 15c at one stage from its level of 12.89, before losing most of it once again...
There was a bit too much volatility to even cover!
But most importantly, Wednesday morning began with the market sitting in the mid 12.80s, and volatility still very much around.
On the home front, #TheCapeStorm had well and truly hit as Cape Town was being battered by heavy rain and wind since Tuesday evening, causing havoc across the city...
...while in Knysna, fires raged to the point of residents being evacuated through fear of safety. Houses, cars, property and lives were lost...
There was a big day ahead of the market on Thursday - both the UK Elections and FBI Director Comey's testimony had somehow manage to coordinate onto the same day...
...it was sure gonna be a biggie!
But for Wednesday, it had its own little pack of happenings.
The market chopped to-and-fro, doing its best to make inroads into the greenback, but it was fighting back hard...only the investors were left in the middle to catch the majority of the punches thrown. Tough times...
To make the volatility worse, with expectation at an all time high on Wednesday evening of Comey's testimony, the initial statement from his testimony was released... and with Democrats taking this as more ammunition to destroy or rather impeach Trump, and the Republicans taking it as the vindication of the President...
With Thursday's action looming, it seemed the moment of truth was coming...
And just in time, our forecast was issued.
The expected trend (see below - click to enlarge) for the market had to probable counts, with the most probable being some strengthening of the Rand before it would then bottom out, and move into the R12.97-13.04.
Click to enlargeAnd then finally super Thursday had arrived...events galore, but the effect yet to be seen?
Was it going to be the humdinger we expected?
Or the fag end which was probably more likely...?
Only time would tell
The markets opened with the Rand in the low R12.80s as the UKers went to the voting booths. Results of that election would only start to come through late into the night.
ECB Interest rate decision (an event which had been dwarfed by the others which surrounded it) was due at 13h45 SAST.
Comey's testimony was due at 16h00 SAST.
And with a slightly uncertain step, the Rand 'strode' into the week ahead.
And from the outset, it was weakening a weakening trend...
...as during the morning, the ZAR albeit gently, did weaken against the greenback, and by the time the ECB Interest Rate Decision rolled around, was trading at R12.86/$.
And onwards toward Comey's testimony, the market continued to weakening, becoming increasingly jumpy as Comey took center stage with the Rand now over R12.90...
As Comey proceeded through the questions and testimony, the Rand held strong...
...even though though this was the event of the week, and half the USA had stopped work to watch this, the market kept stable...
Once again, just another example of markets NOT being moved by events, purely triggered...and clearly this was not one of those triggers.
So, despite #TheCapeStorm, Knysna fires, ECB Interest Rate Decision, Comey's Testimony and the pending UK Election results, the Rand sidled to a comfortable close around R12.90/$...
And then just Friday was left, it was time to close the week out...
Most woke on Friday to the news of what had happened in the UK...
Prime Minister May's decision to call the surprise election had not paid off, as election results saw her winning the election but without the majority, which meant a coalition was going to be needed.
With the fear of safety, #Brexit and more in England, this was the last thing they wanted.
This meant the Rand made some excellent progress against the GBP on Friday morning, strengthening fast.
And this was despite Moody's downgrading South Africa's credit rating!
As for the USDZAR, a calm day was at hand, and it slowly moved its way to close in the mid R12.80s at the end of a long week...
The Week Ahead (12-16 June 2017) |
The market sure does not make it easy for us to predict the week ahead in terms of what are going to be the big moments!
After this past week where we saw events would and 'should' have been worthy of major market moves, but turned out to be major flops!
But this week, we do still have some events worth mentioning.
We have both the Fed Interest Rate Decision and the SA Current Account for Q1 due, plus some other smaller events.
We document all of these and offer them to our subscribers with our expected effect on the market rated and colour coded - let us know if you are interested in getting this.
As for the rest of unknowns and unexpecteds such as the end result of Russian meddling in the USA Election, Comey's testimony, and other corruption and action on the home front - well...these are impossible to keep track of.
Just rely on the Eliott Wave Principle - it will take them into account even when we cannot.
All the best for the week ahead,
James
