Rand pulls back as the US stimulus stalls

Some relief for the Rand finally came in, as failed stimulus talks in the US dragged on, and the Dollar's recovery stagnated.

It was a week of lots happening and not many results - while economic figures continued to come out, revealing the extent of the pandemic's damage.

For once though, the Rand was the beneficiary of these.

We are left at the crossroads now, as to whether the move up is complete, or if we are going to see a test up above of R18/$...

...so let's start with the review of this last week, and then we can see about the inside track on where the markets are heading in the next few days, weeks, months and years.

Looking back at the last 5 days, we had a number of major events grab the headlines:

• US Stimulus - the talks continued to drag on with Republicans and Democrats unable to reach any sort of agreement, while Americans hit by the pandemic battled to make ends meet...
• Eish-kom Again - despite great promises just a few weeks ago, more failures meant load-shedding was back
• UK Pain - no one was left unaffected by how 2020 has gone, as the UK reported their GDP losses...
• Economic Data Aplenty - releases of data across the globe made for interesting reading, as we continue to gain insight how much the pandemic has done...

The Rand opened the week very much on the back foot after being battered up toward R17.70 to the Dollar the week before.

Per our forecast from last Friday, we expected a topping out in the 17.64-18.02 area...(see below - click to enlarge)

And so we watched to see how the week was going to play out...

Over in the US, things were not looking rosy when it came to the latest stimulus bill.

Ridiculous as it may seem that another stimulus bill is needed - after the trillions of dollars that have been already been spent in the last few months - US authorities are desperate to keep the economy going at all costs - but cost it will at the end of the day.

Stimulus is like a drug for the economy - the more it gets, the more it needs to keep going - and the more it becomes addicted....

The vicious cycle continues...

...until it all explodes in a big bang.

Don't be surprised when this happens - it has to!

We are busy seeing a debt bubble like never before - and when it bursts, it is going to be ugly and painful - with massive deflation coming with it.

So watch out for that one.

In the mean time, the US economy is crying out for additional stimulus, and the two parties appear to be playing politics and blame games with the election now less than 3 months away.

This will be a major trigger to watch over the next few weeks...

And as this played out, we saw the Rand weaken further on Monday, taking us to touch as high as 17.78.

But that was where it ended, as we saw the tide turn for the second half of the week:

While we didn't see the market go as far down as our forecast yet, so far it has been fully validated… another win for our Elliott Wave based forecasting system.

Also coming out of the US was news on Trump's challenger, Joe Biden, picking his running mate in Kamala Harris. Expect a lot of posturing around this choice in the weeks to come.

Trump has warned many times that if he were elected out or impeached, the stock market would crash. We know things don't work that way in these markets, but nevertheless the election will be a massive trigger when it comes to markets, both to the US and globally...

...and so we wait and watch as we near the D-day in November!

And then in other news:

• Eskom unfortunately piled on the pain for locals as plant breakdown after plant breakdown rolled back the good work done in the last few months, bringing back stage 2 load shedding. For what economic activity there is after the pandemic, this is the last thing that is needed to stimulate growth to recover lost ground. Will Eskom's supply ever be stable?
• In local economic figures, the unemployment figures were due to be released this last week, but for some reason, we never got word on what these are, but expectations are for closer to 35%. Retail sales for June contracted 7.5% year on year, but bounced back significantly compared to previous months. Mining and Gold production unfortunately made for miserable reading, so despite Gold's massive rise in value to around $2000, SA couldn't take the advantage it could have done with the higher pricing. Fin24 also reported on how the whole of Africa was suffering in the tourism industry due to the lack of travel - a massive effect on one of the main income's of the continent.
• Over in the UK, they experienced their worst economic slump in Europe with a 20.4% contraction in GDP, as another 114,000 jobs were lost during July. The pandemic is as long as it is wide, as every economy was coughing and spluttering under the lockdown's effects.
• In the US, there were the first signs of there being some recovery with jobless claims falling below 1 million for the first time since the pandemic began. However, it must be remembered just how many claims 900 odd thousand is - well into recession territory, and as unemployment benefits are not as high as they were before, debt bubbles on credit cards, mortgages and more are going to start popping.

As for the Rand, we saw it gently trade lower as per our forecast, eventually breaking below R17.40 to the Dollar.

While we had not seen our target areas from earlier in the week hit just yet, the market had pulled back significantly from where it had been...

...and that was the wrap as the USDZAR closed SA time at 17.36.

As we look to the week ahead, we have several events, but not major triggers coming up over the next few days:

• SA - Inflation Rate
• USA - FOMC minutes, Jobless Claims, Durable Goods orders
• UK & EU - Consumer Price Index

However, there is aplenty going on apart from this, with tensions in the East ratcheting higher with the situation in Lebanon, and then the countering of those tensions with that latest deal between Israel and the UAE.

And not to forget the ongoing stimulus situation in the US, which stalled badly through this last week.

So, with all these events, where will this leave the Rand?

The Rand has taken a pounding the past 2 weeks, and while we have seen some retracements in the last few days, market volatility is unlikely to subside.

When the market is highly volatile, it is extremely difficult to make rational and educated decisions - which most often mean doing EXACTLY the opposite of what your emotions are telling you.

And that is why we continue to rely on our Elliott Wave based forecasting system to give us a scientific-based objective view of where the market is likely headed in time and price.

You saw how this helped us and our clients keep ahead of the game, while many were caught off-guard ....AGAIN!

I sincerely do trust that YOU were not one of them...

...because this week is not likely to be any different!

We are watching 2 key levels the next couple of weeks, which will confirm our longer term wave counts.

(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