Rand powers on - can it continue?

What a week for the Rand, as the Rand turned an early setback around to end the week with all guns blazing, rushing down to sub R15/$ for the first time in October...

Relief for importers...

...and disappointment for exporters - apart from those who took cover in time!

It was a massive news week, as well as wild in the markets...

...and surprise surprise, our Elliott Wave analysis saw it all coming!

Let's have a look at how you could have seen it too!

Before the week began, we issued our Elliott Wave Forecast for the USDZAR on Friday the 4th of October.

The outlook was a bit of a complex one, with the ZAR trading at R15.04, expected to bottom out in the target area of 15.05-14.84 before moving higher towards R15.20 (potentially higher), before falling sharply to new lows (see below - click to enlarge)

Click to enlarge

And what followed was a very interesting week in the markets...

And too in the news, with some of these big headlines:

• Trade War - it was case of one step forward, one step back as China and the US tussled during the course of the week, battling to come to any sort of agreement or common ground.
• Mid-Term Budget - it is almost time for Tito Mboweni to give an update on the economy and financial state of SA...
• Eskom & SOEs - and these are the biggest worries that will be giving him sleepless nights ahead of that speech...
• Moody's looms - and then there is what is on the line, with Moody's Credit Rating decision due in and around the date of the budget speech...
• Turkey invades Syria - as the US moved out of Syria, Turkey moved in on a full scale offensive war...!

From the open of markets on Monday, the Rand was on the back foot, quickly moving as per our forecast from Friday. The low had been right in our target area, but now the ZAR was on the upward trail, as we headed into a week of uncertainty.

The biggest uncertainty had to be the Trade War, as the pendulum swayed from side to side...who was going to crack first?

China started the week with putting a dampener on things by stating that they will not be looking for a broad trade deal and will be keeping certain issues off the table...

...to make matters worse, Trump blacklisted another 28 Chinese organizations.

As this went on, the Rand slowly edged its way up to R15.31 amidst the uncertainty...this was a little higher than our ideal target area from Friday, but still as per our overall predictions...

Then it was time for our next forecast on Wednesday.

With the Rand having slightly recovered to R15.17, the trend was for a break below R15.0896 confirming a move down into a target area of R14.95-14.79 or lower... (see below - click to enlarge)

Click to enlarge

It appeared we were in for an interesting second half of the week.

And interesting it certainly was!

On Thursday came news of a potential "mini-deal" between the US and China on currency, which was at least one step in the right direction.

And then the big news for the week came on Friday: Trump saying that "good things are happening" in the China trade talks, and "Warmer feelings than in recent past".

The Dow surged 450 points on this news - and the Trade War had a positive close to the week!

As for the Rand, it EXPLODED lower to touch sub R14.75!!

It was more a case of Dollar weakness than Rand strength, as we saw the Dollar Index take a sharp tumble...despite this being Dollar-positive news!

So, contrary to logic (the news should have been Dollar-positive), but exactly in line with Elliott Wave analysis...

...it isn't always perfect, but the science still amazes me every time!

And then, in other global and local news...

• Over in the Middle East, tensions were raised a notch as Trump withdrew US troops from Syria following a call with the Turkish government - which was followed by an immediate assault from Turkey on Syria. It is a thorny issue with different US allies and enemies within the two countries...and the net result of the decision has been a launch of full scale war from Turkey.
• There were many issues for Mboweni to consider prior to his budget speech, and one of the biggest was Eskom. The National Treasury published a report proposing a bailout plan for our favorite SOE, Eskom. The proposal suggests funding of R23bn for 2019-2020 and R33bn for 2020-2021, together with a number of new conditions Eskom would have to adhere to. These came after disastrous financials showing an after tax loss for Eskom of R21bn, up from R2.3bn last year.
• The plan of breaking up Eskom and finding a solution to SAA & SABC are the 3 biggest SOE problems right now and are crucial to showing Moody's that SA is serious about turning things around, and things are actually moving in the right direction.
• In reality, SA is in a very difficult position economically. The World Bank just cut its financial market forecasts for South Africa once again, as a "sharp slowdown was noted". But despite the worsening economics, most investors believe that SA will not be junked. But not all have this view, as some experts with a high success rate of predicting #JunkStatus have said that chances are low of SA surviving... All in all, it makes for quite a showdown at the end of this month.
• In more positive news, in Ramaphosa's "From the desk of the President" newsletter, he focused on his discussions with the Nigerian President and noted plans to strengthen trade agreements within Africa. His view was South Africa's future is within Africa, and with Africa. For that to become reality, stronger trade deals were certainly needed!

And that was the wrap for the week...

The Rand had jumped hurdles, through hoops and climbed overhangs to end the week strongly on the front foot...

...what a few days it was the ZAR and the Elliott Wave Principle!

This week sees not a lot in terms of economic data releases, but there is still plenty to keep the market on the edge of their seats, what with Turkey & Syria, Trade War updates, Brexit looming, Mid Term Budget and Moodys.

After a tremendous week for the Rand, the question is - can the Rand extend its gains of the past 2 weeks?

Again, based on our latest analysis, the answer is a likely yes, but again, do not expect it to be one-way traffic.

We have some key levels this next week to watch, which could make this week a watershed one.

To get a look at what we are speaking about, use the link below to get access to the latest forecast.

(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