Fed triggers Rand collapse....were you caught out?

Well, well...how quickly the tables turn.

Sentiment reaches an extreme. And when that happens, the next step is just inevitable.

Our wave count called it...

...and the signs were there if you looked at economic news.

"Emerging-Market rally seen as unstoppable" wrote Moneyweb, reflecting the extreme positive sentiment that abounded, which confirm that the tide was soon to turn.

But what did it require?

A trigger.

Which was just what we got with some Fed news this week.

Big question is whether you were caught by surprise?

If so, let's get into the full review, and how you could have seen this one coming.

So, to start with, here was our forecast from last week Friday (5 June 2020), with the expected outlook over the coming days.

With the market having broken as strong as R16.79, our predictions saw it being expected to bottom out shortly in the R16.93-16.50 range over the coming days. So in short, our forecast showed that we were expected to head stronger initially but with the market due to reverse shortly before rising strongly...

...it was going to be an interesting week!

And interesting it certainly was. These were some of the biggest headlines:

• Grim Fed outlook - Jerome Powell's frankness saw a trigger for a massive market sell-off...but it wasn't quite that simple
• Dow & S&P 500 capitulate - in their worst days since March, we saw the Dow tumble 1862 points in a single days's trade, and the SP500 similarly seeing about 6% losses
• Zimbabwe capitulation continues - in desperate need of a loan, banks began clamping down on foreign currency accounts causing mass panic
• Economic data - a strange week of stock market activity, economic data and more left us wondering all the more as to what all the effects of Covid-19 will be

So, to start right at square one, we saw the Rand open the week in the R16.70s, with potential for more ZAR strength as per our forecasts from Friday.

And that was just what we saw over the coming few days as the market steadily tracked lower, until Wednesday, the big day of the Fed's announcements.

Now, the warning signs were all there - our forecasts, the over-abundance of positive market sentiment and much more.

But what it needed was a trigger.

With the Rand trading close to R16.50, Powell dropped some economic bombshells to provide just that:

• Interest rates were to kept constant, close to zero.
• The Fed sees interest rates staying around 0% until 2022
• Unemployment would only reach 5.5% by the end of 2022
• Treasury & Mortgage securities would continue to be bought at $80 & $40 billion per month, respectively

Generally, Powell was very US-negative - or dovish, as commentators like to call it.

We saw the Rand trade stronger after this announcement, touching as low as R16.33 - a little lower than ideal of our target area, but it quickly retraced, and never closed below the invalidation level, leaving the forecast valid and in play.

But then it was time for our next forecast (Wednesday evening's) on 10 June 2020, right after the announcement...

Our prediction (see below - click to enlarge) showed that we still expected the Rand to bottom shortly in the 16.51-16.00 area, before pushing as high as to test R17.29...

That seemed a very long way away, with the Rand having just traded closing on 100c stronger than that.

But that is what the wave count said, and we know that our Elliott Wave-based forecasting system to be more often accurate than not...so we went with it.

And wow, what a day followed on Thursday!

The Rand opened at R16.70/$ by 8am the next morning...

...and closed in SA time well over R17/$ by the end of the day.

US Stocks capitulated - the Dow Jones Index down 1800 points (over 6%) and the SP500 doing similar, both in their worst days since March.

And best of all - our Elliott Wave-based forecasting system had called it again.

Sometimes we ourselves have to just look back in amazement at the impressive way this system can work to call swings like these.

And then in other news:

• Just over the border, the news was not good… Zimbabwe continues to battle its way even more as a result of the Covid-19 virus. Desperately in need of funding, they are pleading with the world for bailouts in order to keep afloat, but countries like the US have specified that they want strict conditions on any terms. This is understandable considering track records of these kinds of loans to smaller economies - particularly Zimbabwe itself. Already the warning signs are there as foreign currency bank account holders in Zim are panicking, as more and more restrictions are put in place on the accounts, restricting withdrawals.
• South African banks are also not looking healthy. They are currently on track for their biggest profit slump in the last 50 years, which is some crazy stats! Lockdown has lead to a surge of payment failures, as well as a decrease in business activity of around 40-50% across the entire sector.
• Another 1.5 million jobless claims were reported in the US, even although there was the surprisingly good Non-Farm Payrolls data. The data right now is not making a whole pile of sense, but one thing that Jerome Powell made clear was that a V-shaped recovery is out of the picture - a pipe-dream, as it were. Over in SA, manufacturing and mining data didn't make for pretty reading either - 5.4% and 47% losses respectively.
• After a frantic day's trading on Thursday, we saw more of the same on Friday, as it touched R17.29/$ in early trade and then yoyo-ed between there and R17.28 as we saw volatility return to the markets, as US stocks saw a second slump to end the week on a very sad note.

What a week it had been - called yet again by our Elliott Wave-based forecasting system.

As we look to the week ahead, there not too many events over the coming days, with some of the major ones being:

• SA - Business Confidence
• US - Retail Sales, Jobless claims
• UK & EU - Unemployment rate, CPI, Interest Rate Decision & Monetary policy statement

But don't let that fool you into thinking we can expect a placid week - in fact, expect just the opposite! It looks like this week is going to be another humdinger of a week with volatility having picked up..

So where does that leave the Rand?

We are expecting more volatility here too, and will be watching some key levels over the next week or so to confirm or invalidate our preferred Elliott Wave count.

We warned you last week that the market could take many by surprise?

My question to you is: Where you one of them?

Because if you were, I am really disappointed, because there was no need to be, when you had access to the above charts, which gave you a heads-up before the market jumped.

Please don't let that happen again!

(You don't want to regret not having done so this time next week...)

Look forward to hearing from you.

To your success~

James Paynter