It was another week of building.
Not positive building, but building of tension globally, waiting for an explosion...
...as Hurricane Harvey raged through Texas
...and tensions rose toward to a crescendo between the USA & North Korea
...and Trump asked Russia to close their embassies in D.C., NYC & San Francisco
Through all this political and general news, the market held strong for that period. And this is now the third week running...
September has now closed off with a total range of just 60c...
While this may sound like a lot, but it really has been a sterling effort from the local market.
Lets run through how it all went down...
Disclaimer: Retrospect is a perfect science. And while it may seem foolish to review week by week, we do this to provide some perspective to show how the markets moved compared with how our forecasts using sentiment patterns had indicated they would. And more often than not, the markets do just the opposite to what rational thinking would suggest.
How It Happened (28 Aug - 1 Sep 2017) |
It had been a slow moving couple of weeks for the Rand, and it has become a waiting game for many to see when things are going to return to 'normal'...
Even our forecasts have been playing out slowly, as the market seems hesitant to move.
The market's break lower on Friday meant that we were to expect another drop down into the 12.96-74 area before we would then see the Rand bottoming out and heading higher...
Click to enlargeMonday followed suit with the previous two weeks and continued to keep quiet. We had another small daily range, of only around 10c.
Major news around the world all centered around Hurricane Harvey. As it tore its way through Texas in a way described as "unprecedented" by the National Weather Service. It was also labeled as a "1 in a 1000 year event".
At this stage, it was unknown what long term repercussions would occur from it, in the US, and the markets too.
On Monday, Andrew Rissik of Sable Forex, warned that the Rand will continue to devalue long term as SA is not attracting long-term "sticky" capital.
Long term trends are one thing, but medium term moves can often can be counter-intuitive.
We need to look no further than Tuesday for an example...
On Tuesday, tensions rose to to an all-time high between the USA and North Korea. Crackpot Kim Jong-Un had launched another missile, the most provocative ballistic test yet. This which went further than any other so far, flying right ove r the northern Japanese island of Hokkaido, generating warnings for citizens to take cover.
This level of tension is not good for any market, let alone a volatile USDZAR...with RMMB currency analyst John Cairns saying that "A war between Japan/Korea/US and North Korea would be devastating — and generate R2.00+ big figure rise in USD/ZAR"
But what did the Rand do with all the above?
This....
After rising as far as R13.12/$, the market crashed downwards around midday, and kept pushing hard through until Wednesday morning.
On Wednesday, the market touched as low as R12.92, taking it into our target area from Friday's forecast.
As for the EURUSD, it had pulled back right under 1.19 by Wednesday evening! It was incredible how little the USDZAR market was moving despite the North Korea, Hurricane Harvey and the EURUSD volatility!
Anyway, the Rand continued its choppy route, making its way back upwards to over R13/$...
...and in fact as far as R13.10, as it spiked upward before recovering.
Just some flashes of normal volatility coming back again?
Who knows, but on to Thursday we moved...
The rebound of the USD against the Euro continued, as it pushed even further to 1.1823 on the back of strong Q2 GDP figures, and some slowly subsiding tensions in the Korean Peninsula...
However...
Fighter jets continued to patrol and train...so how much longer before there is a blow off from all this build up?
Locally, SA’s July budget balance recorded the largest deficit since 2004 and is sure to ring the warning bells at the credit rating agencies.
A small positive is that SA’s trade balance is expected to record a healthy R4.7bn surplus for July...
That said, not all too rosy back on local shores!
Throughout Thursday, the market continued on its choppy way, ending around R13/$ once again, with comments from Lesetja Kganyago, governer of SARB not being too encouraging...
"Why not just nationalise the SA Reserve Bank (SARB)? Nationalising SARB will not change anything useful we cannot change in any event. Our shareholders already have no control over SARB policies," he said.
Friday brought more hurricane news from the States, as Hurricane Irma was now expected to come through sometime next week.
She had just moved to a category 3 storm...
...and another hurricane strike on the US could be catastrophic.
In local news, SA’s July trade balance was an impressive R8.9bn. This brings the year-to-date surplus to R117bn (the largest since 2011; rand positive)!
So into September we went, after an impressive month of August for the Rand.
And right away, the market was making great gains at the start of the new month, starting to push the public sentiment even more positive...
On the back of weak US Jobs numbers (only in the areas of 150k jobs added) and also the Non-Farm Payrolls, the Rand shot as low as R12.85, right into our target area...
And then reversed to hit R12.91, and that was how the day and week closed.
The Week Ahead (4-8 Sep 2017) |
The week has started with a bang (literally) with news that North Korea had detonated its sixth and most powerful atomic bomb by far on Sunday, pushing war tensions to new all-time highs.
Time is running out (has run out?) to bring this rogue to book.
As US ambassador to the UN Security Council said today, Kim Jong-un "is begging for war...we have kicked the can down the road long enough. There is no more road left."
It is an extremely difficult and testing time for President Trump and his advisors...
Especially after being left with the dangerous results of 8 years of a reckless "talk and no action" policy under Barak Obama....
...and with Hurricane Irma also threatening, this week is likely to be no less volatile than last.
Where to now for the Rand?
Well, I don't look to the news for direction - I look at what the charts are telling me - this cuts through all the clutter.
Short term, we have made a low in our short term target area, and now look for key levels to be broken to confirm we have a larger degree low in place.
Looking at the near and medium term charts, if the market plays out per our preferred scenario, the next week or two could prove interesting indeed!
To get a view of the key levels we are watching and a roadmap of where sentiment is likely to take the Rand, give our service a test run ...GRATIS!
Looking forward to helping you see the wood from the trees.
To your success this week and beyond~
Best regards,
James
