Rand Review - 3 Apr 2017

JZ has done it ... again ... and more

Always with a self-serving trick up his sleeve...

...and always a Rand #CrashFlash around the corner.

This week was the one where it all turned on its head.

Jacob Zuma went after Finance Minister Pravin Gordhan with renewed vigour, and before you could blink your eyes, the Rand had collapsed into a pile of rubble.

Done.

Just like that.

An incompetent individual with the power a president has, is unfortunately a very dangerous situation.

The result: The USD/ZAR moved over 100c in just one week, closing above R13.30 on Friday.

BUT...

You COULD have seen this all coming.

Honestly.

Our forecasts this week predicted the Rand to do exactly what it did...(the news does not move the markets, only provides a trigger to sentiment...)

So we didn't forecast what Zuma would do. But we forecasted what reaction the markets would have to an unknown factor...

...want some proof?

Then read on...

Monday…

This week had an uneasy feel about it from the start…

The rumours had been brewing, and the pressure pot was slowly getting to boiling point.

Sentiment was at an extreme.

The Rand was due for a turn. And South Africa was due for another political scandal.

But first things first… the Rand was on a winning streak, and it initially was continuing its trend, during the course of early Monday morning. Gentle strengthening up until 10pm, took the market to just a touch above breaking the 12.30 mark.

But before that, we had released our forecast for the next few days with the market sitting at 12.3647 - the expected trend was strengthening of the Rand initially, and then a bottoming out between 12.33-12.17...

Click to enlarge

And boy... did it bottom out!

Zuma did the unthinkable and recalled Finance Minister Pravin Gordhan and Deputy Minister Jonas from a investor roadtrip in London…

At this point, the pressure cooker began to bubble furiously…

Speculation, ideas, worries and more circled around the markets.

What was happening?

Where are we going from here?

One thing was for made clear: 12.30 is as good as it is going to get for the Rand for some time
The market did a full 180 degree turn, and in 1 hour it had lost 30c

And this was only the start…

...as by the end of the day, it had lost all of 50c!

Pandemonium, disbelief and horror...

...the economically illiterate buffoon had done it again.

BUT…

This was EXACTLY in line with our forecast BEFORE any of this happened.

Once again enforcing this fact:

Who could have guessed that we would have predicted these moves apart from understanding the laws that govern human behaviour in financial markets?

A sorry state of affairs for those who did not have the right information in front of them on Monday morning...

...but relief for those who used the knowledge provided to them to make the right decision.

This picture tweeted by Stuart Theobald had the caption “Did anyone else see the big jump in USDZAR futures contracts on Monday? Big profit for someone who saw #Gordhan news coming”

Yes, some persons did profit big from the Rand’s moves.

However, were those people using inside information regarding what Zuma was going to do, or did they perhaps analyze the markets and forecast the Rand moving like we did…?

Perhaps we will never know… 🙂

Phew.

That was only the first day - so onwards to Tuesday!

The Rand had validated our forecast perfectly, but it was now required of us to produce another one on Tuesday morning in order to keep our subscribers up to date.

And the outlook did not make pretty reading…

The Rand had already made further steps in the wrong direction on Tuesday morning with more speculation over Gordhan as he made his way back to South Africa.

By the time our forecast was released, the market was already sitting at a touch over R13/$ - a full 70c away from where it was 24 hours before…

The outlook (see below - click to enlarge) was bad - further weakness was on the horizon, with the target area for the rand looking like R13.19-13.48...

Click to enlarge

The market was volatile… it yo-yoed up and down, and from side to side. The whole day.

There was never a chance of stability with what was going on - and the Rand shot from R13.10 down to R12.81 and then most of the way back again.

Overall, it was a day of slight consolidation, mostly thanks to the fact that Zuma’s attention was drawn in a different direction…

The Gupta/Gordhan/Banks court case commenced, with news that Zuma had made application to join as an 'interested party' (and how!)

Also, Gordhan’s exit was by no means a done deal yet, with it being rumoured that the SACP and some of the ANC Top 6 were against the removal of Zuma's achilles heel Gordhan.

On top of all this, UK Prime Minister May signed the final papers for their divorce from the EU…

So, for Britain, it’s “Adios, see EU later!”

So moving on to Wednesday - it was clear the action was not yet over.

The finance minister was definitely still on his agenda, but everything was just speculation…

...however, after being in the crosshairs of Zuma’s weaponry for months on end, his objective was clear -

Gordhan & Jonas must go - and to hell with the cosequences!

News leaked that Zuma was using an 'intelligence report' (that claimed Gordhan and Jonas were to use the investor roadshow to mobilise prominent people to act against the state) to justify his recall and their being removed from office.

...But not surprisingly, this was being rubbished by many to whom Zuma was looking for support for his axing.

For the next 24 hours - there was a lot of speculation, concepts and theories, and also some choppy Rand movement -

...but no news...no trigger!

So when we got to Thursday morning, the market was in more or less the same area of the early 12.90s. And being Thursday, it was time for us to update our outlook to reflect the way the market was due to move.

And this time, it was effectively a double forecast, with the Rand due to bottom out shortly in the 12.86-12.72 area,

And then was expect to climb into the 13.24 to 13.48 area....

Click to enlarge

And there was just that feeling to Thursday.

Something was going to happen...

Already Zuma was active early in the day with his comments to the National House of Traditional Leaders…

"We must do everything within the law. We are not saying, let us go and take the land. We are saying, let us amend the Constitution," he told the National House of Traditional Leaders.

In a nutshell he is saying is: ”What we want to do is illegal. So let us legalize it by amending the Constitution, and then it will no longer be illegal”

Danger was lurking…

...but for the most part of the day, the Rand strengthened EXACTLY as per our forecast.

But we had several nervous exporter clients who felt they hadmissed the boat “I could have traded earlier! Shouldn't I just get out now? What if Zuma doesn't get this right?”

It is at times like these that one can doubt one's one analysis, but experience has taught me to keep news and my emotions out of the picture.

The charts said higher, and that is all that we trust.

Sure as can be, the Rand bottomed out at R12.80, RIGHT in the middle of our target area at around 6:30pm on Thursday evening…

...which somehow coincided perfectly with the announcement that Mr Zuma had called an “urgent meeting” between the Top 6 of the ANC.

And then the carnage really started.

The pressure pot lid blew off.

Speculation reached an absolute height of everyone’s opinions flying in regarding who was going to be fired and who was not.

The #CabinetReshuffle was clearly underway behind the closed doors…

In just a couple of hours, the Rand had lost another few percent of its total value.

Scary, volatile movement sent it spiraling seemingly into a unstoppable trend…

...and this was before anything was confirmed regarding Mr Gordhan, or any of the other ministers…

Zuma had put away the guillotine, and had rather gone for a bomb blast instead for maximum destruction instead of individual elimination.

No less than 10 ministers and 10 deputies were axed or shuffled, resulting in Gordhan and his deputy being removed, with Malusi Gigaba (a Zuma loyalist, and member of the SACP) being placed in Gordhan’s place.

The Rand did not take the news well…

It had been a torrid time for the Rand in general...but those who had the analysis on where it was going, would have benefited handsomely!

Once again, news was the trigger for our forecast to be validated… amazing how it happens, time and time again!

The event of the week being finally completed did not stop the Rand from some more volatility on Friday, as early trading from those who had not heard the news last night, sent the Rand shooting over R13.60/$!

It quickly fell back down again though, into the sub 13.40 levels...

With just one day left in the week, the afternoon seemed to be used more for retrospect on the devastation the last 4 days had created.

The market did not stop its volatile jumpiness, but for once no drastic news arrived…

What a week it had been!

And we have only covered half of what could have been said…!

Well, if anyone thought that the the dust would settle after the Zuma bloodbath...

Think again...

Applications for votes of no confidence, interdicts to stop Zuma swearing in his ministers, signs of severe rifts in the ruling alliance and more ensued.

And there is widespread anger at the way the economy had been dumped into the trash can by one who has been aptly described as "economically illiterate"...

It left unanswered questions…

• What does this mean for South Africa?
• What does this mean for the economy?
• What does this mean for the Rand?

All these questions in persons minds are what is causing the stir around the markets...

And the haze of confusion and worry is not going to be lifting anytime soon.

And here is why:

These replacements have each been tailored for their appointment - not because of what their qualifications are, or as to how well they had done their job, but each person's responsibilities are measured in direct proportion to their loyalty to Zuma, the Guptas and to 'radical economic transformation' - the next phase of the National Democratic Revolution, which the SACP have hailed as the 'most direct route to a socialist then communist future.'

Ominous stuff indeed.

It is a sorry state of affairs - but corruption, scandal and dark ulterior motives are never going to be far away with this team headed up by Zuma himself.

So…

Where do we even start to look for some guidance for the Rand in the coming few weeks?

Trust the Elliot Wave Principle - it is not perfect, but it absolutely nailed the forecasts for this past week.

And that must count for something, considering the week it was!

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

To your success~

James Paynter