Rand Review - 27 Feb 2017

Well, well well…

Who thought the Rand had run out of steam at the end of the previous week?

I think many did…

...but there was more left in the tank.

#Budget2017 provided some real impetus to the Rand.

This was contrary to popular belief, yet the Rand stormed past it the record level from last week, making a staggering mark of R12.78 to the US Dollar.

While it did not initially look like it, it appeared that the Rand took the general feeling from the Pravin Gordhan Budget Speech very well...

...unlike most tax payers!

So… a strong Rand, a rollicking Budget Speech and much more...

...what did this week not have?!

Let’s get right into the review!

Monday.

All eyes were already on Wednesday - Budget Speech 2017.

All rumours were circulating about what this would bring, as everyone brought their opinion to the table.

Tax increases, VAT increases and much more were all on the table. But all unknown for the time being…

What we needed was some guidance going into a quite likely, tumultuous week…

...and that was when our forecast arrived for Monday, giving us some direction.

As per the forecast (see below - click to enlarge), the preferred wave count showed that the market was expected to rise a bit further during the first half of the week.

There were a few levels we needed to keep a close eye on. On the top side, R13.2061 being the level needing to break to confirm the preferred wave count. And R12.8978 being the level to watch below, as a break here would signal that the preferred wave count had been invalidated…

Click to enlarge

Early on Monday morning, before our forecast was out, the Rand had strengthened down to R13.03.

This was the starting point for the coming week, and from there things started to get a little choppy...

...as the market moved sharply up to hit R13.18 by 10 a.m.

...before falling back down again in the second half of the day, reaching a similar position to where it had started, just over 13 to the Dollar.

So a day of not much net result, perhaps as a result of US markets being closed for President's day.

And then it was Tuesday...

Unsuprisingly, as the day wore on, it felt once again as if everyone was waiting on the Budget Speech the following day...

...but there was some movement in advance.

Markets made their high for the week of just under R13.20. After that they then fell away again another 10c back to the R13.10 levels as Tuesday drew to a close.

Finally.

Budget Speech Day.

The markets stayed quiet in anticipation throughout the morning, and it was not until shortly before the speech that we began to see some action.

As it happened, just before the speech the Rand lost ground rapidly...

The speech bought bad news for most, as personal income tax levels rose to new highs, leaving many gulping at the thought of the 2017/2018 period...

In fact, bad news seemed to be the only thing that was leaving Pravin's mouth, and it was certainly a depressing scene for the most part during his speech.

So... a grim outlook for the coming year...

...it was surely not good news for the Rand... surely...?

BUT...

...against all odds...

The Rand roared throughout the afternoon, cruising through the R13/$ barrier in the evening!

As always, there was a slight consolidation after this movement...

But what a day it had been!

South Africa cringed as Gordhan spoke...

It felt as if there was bad news and nothing else.

Yet... the Rand decided it was going to strengthen on the back of the news!

It didn't make sense.

But it once again confirms - news may move the markets, but it does not determine the direction it goes!

Thursday.

This was an all important day for more reasons than one, as it was the day that there was expected to be some post budget action, and also it was our forecast day.

And our forecast showed that the movement the previous day had indeed changed the short term outlook, following the failure to break above the R13.2061 level.

The Outlook: We were due to see further short term Rand strength...

Click to enlarge

And so there was!

More of the same positive sentiment saw the Rand pushing ever stronger, taking free-fall after free-fall!

Soon it was under R12.90...

...then R12.85!

Late afternoon saw it spike downwards below R12.80/$!

When last had we seen levels like this?!

It was quite astounding!

And also, exactly as per our forecast from Thursday morning!

The analysis from persons was that it was due to US Fed Interest increase chances having eased, French Politics & Trump being calm this week, and the budget being positive...

...by now you know, we don't agree with this.

Although we don't disagree that those elements could have affected movements, it is the overall sentiment that determines the direction.

But getting back to the Rand, the hero of the week!

The latter half of Thursday afternoon and evening saw a consolidation back back closer to R12.90 as the day drew to a close around that level.

Friday dawned and the weekend was in sight.

For the most part, the Rand was calm, as it weakened steadily throughout the day.

Rash, volatile, and impulsive moves seemed to have slowed, and we saw the market gently push its way to the mid R12.90s, as the week drew to a graceful close.

This was one of the very few we have had in the past while!

Well...

Let's catch our breath before we start rushing into next week's predictions!

It had been a helluva week, and we definitely need to do a 'stock take' before we look into the next one.

The Rand reached it's best level for the whole of 2016 & 2017 (and the last 4 months of 2015 ) - quite an achievement.

Its strength for many was unexpected, and sent shockwaves through those who had not accounted for it.

There are some big data releases this week locally and in the US and of course politics coming to the fore once more...

...so this next week is going to be crucial.

It has been a good run for the Rand so far. When a market has had such a continuous run like this, there is always a point where the tide turns.

Sentiment reaches an extreme. And then everything turns around. While we are not saying this is the case, it is a possibility.

The clarity regarding this, will be arriving in the form of our forecasts for the next week, which we are offering free to you...

...interested?

Hit the button below if you are to get free access to all our forecasts:

As always, I would love to hear your comments and feedback - please leave a comment below.

To your success~

James Paynter