Rand blown away to worst level of 2018...as expected

Phew, 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 thump back to reality for some.

With the week starting with the Rand having just breached R12.20 after a great week's effort, things were starting to look rosy...

...but often, that's exactly when trouble is just over the horizon.

And so it was, as the local currency took a pounding, although it wasn't one way traffic!

And once again, the charts patterns kept our subscribers on top if their game, cutting through all the hype and providing a roadmap through the storm.

Plenty to review, so let's move on...

At the end of the previous week, we released our forecast for the upcoming days - it had been nothing short of volatile leading up to this, making it all the more difficult.

The break down to R12.17 had jeopardized the preferred wave count, but the outlook was for a move above R12.3682, with the bias for being for a break above R12.4515 and above...a heads-up that this was going to be a humdinger of a week!

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And there were some key moments worth mentioning -

• Rand volatility - are we going back to the volatility of 2015/2016...? 2017 was calm, but 2018 is starting to heat up!
• The cost of state capture - Gordhan gave a chilling estimate as to just how much state capture has cost SA - if it's true, it is absolutely shocking...
• Oil soars - making things ever more expensive for motorists, oil price steamrolled toward $80 on the back of tensions between US & Iran...
• Bus strikes - finally an end was reached, but not before millions of Rands had been lost due to the loss of business
• US & North Korea - things turned a little sour, with the Little Rocket Man threatening to pull out of the Trump meeting, and pulled out of some South Korean talks too...
• Trump & China make up - it seems the fated trade war is slowly dissipating, as Trump is now working together with the Chinese President...

So, where do we even start with a week like this?

It was nothing short of a nerve-wracking week, as the Rand started off hovering around R12.25...

...then spiked up to R12.65, as per our forecast above, from Friday

...then fell hard to bounce off R12.39, testing very close to our invalidation levels...

By the time we were testing those levels, we were due for our next forecast on Wednesday evening, and yet again, the Rand was at a critical juncture - what now?

Well, despite the anxiety that naturally tends to to come to the fore, and the apparent downside momentum the market was gaining, we had to trust the charts and the Elliott Wave Principle - the more murky the conditions when a pilot is flying his plane, the more he has to trust his instruments, rather than his gut-feel - even when his emotions are screaming the opposite!

(Remember that Air France flight from some years back which crashed in the ocean with all passengers and crew? Post analysis showed that the pilot continued pulling the stick back, not trusting his instruments, until the plane was near vertical, resulting in a stall...his emotions took over, and the results were fatal!)

And so, we stuck to our instruments, and released our forecast based on what our analysis was telling us...

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With the market at R12.43, we were expecting a bottoming out in the R12.44-12.34 area, and then heading upward with a break above R12.5147 confirming a move above R12.6482...

And on Friday, this was what we saw, just as anticipated:

And so ended another massively volatile week, with another very timely reminder - do NOT trust your emotions in this game!

An objective view as to where the market is headed is imperative to keeping the emotions under control - but then we need to trust them too, as being the best information available to us at the time.

Now, to keep you in the loop - let's review some of the other events from the week:

• The cost of corruption is almost impossible to measure...but Gordhan was prepared to put a number to it. The former finance minister, axed by Zuma was seemingly one of the few remaining honest persons in Zuma's hierarchy - now that Ramaphosa has brought him back into the fold, he has a little more scope to speak.

  And his words are telling - he claims SA may have lost more than R100bn as a result of what went on between Zuma and the Guptas...economy crippling!

• Despite worries over land expropriation, foreign investors have continued to be firm believers in SA's 'New Dawn' promised by Ramaphosa. Net inflows in 2018 have risen to a total of R24.58bn, and equities are at R33.2bn.

  This continues to prove the point that investors are risk takers at heart - looking for the highest return, with the lowest risk. Calculated decisions. And they still see the country as having that potential for the highest return, at a manageable risk.

• More local news regarding investors was the attempt to take advantage of the new confidence, and tap into the Eurobond market. The Rand has strengthened 16% against the Dollar since mid-November, and the government is looking to curb the budget deficit. Of interest, the foreign debt of the country is less than 10% of total borrowing. You can read some more info on Fin24...
• We spoke earlier about the cost of State Capture to the economy - and the bus strikes were in the same line, with the strike having cost the country in the areas of R589m per week that they were not running! Scary numbers!

• US and China have made progress on the simmering trade war, and in the right direction too - China has offered to reduce the trade gap by $200bn a year (i.e. buy more US goods) & drop import tariffs against select US goods.

And besides a few other bits and bobs, that was that...what a week! Thanks for joining us!

A very blue Monday, as the Rand hit its worst levels in 5 months...

...how quickly things can change in just a week!

We warned of a some volatile weeks ahead, and the local currency certainly hasn't disappointed in providing that! Not that it is anything anyone enjoys, especially when your profit margins are fluctuating so wildly.

And do not expect this to end anytime soon. We are heading into some critical pricing areas the next week or so, and we will need to be keeping our eyes firmly on what the patterns are telling us.

This week has several medium-to-high impact event triggers, including an interest rate decision, that could at the fireworks,.

So, once again, we suggest you join us as we see the market unfold, and give you the best view we can on what to expect for the next few days, weeks and months ahead... and beyond (as we did this past week).

Or, of course, you can trust the traditional economist outlook, the old 'gut feel' and the blind panic decisions that I am sure have served you so well - and so often - in the past...

The choice is yours...

Kind regards,

James Paynter