Resistance is holding the Rand from going further...but for how long?

The market did not react how persons hoped it would this week, as it sent shockwaves through the financial world...

..."where to from here?" was the question as it spiked closer to R13.50/$ on Wednesday.

The Rand had lost over 3% of its value in just a few days.

Who would have expected things to turn so suddenly after such a good few weeks?

A 3% move is something which can crush (or provide a windfall for) a business profits for a whole quarter.

Maybe even a year, depending on how they trade.

So how crucial could it have been that you received our forecasts over the last week or so...?

...I'd suggest you read on to find out.

As always, our forecast was released at the US close of Friday prior to the week beginning, and it was going to be a crucial week - make no bones about it...

With the Rand already having lost significant ground the week before, the question was as to it having bottomed out...

And our forecast from Friday (see below - click to enlarge) confirmed it had. And things were going to change drastically...

With the market trading at 13.0799, the expected target area was 13.34-13.52 - things were about to get messy...

Click to enlarge

Keeping what Friday's chart had said in mind, we looked around a bit at the news...

...and things didn't look great.

Charts from Fin24 did not paint a pretty picture as they showed Forecast carry and South Africa's bond market taking a heavy beating.

While the currency is not at nearly as destructive levels as it has been in the past, the general worry regarding what the future holds is at an all-time high for investors.

It was time for the week to get underway, and with all eyes a-watchin', the Rand strode forward from 13.06 at 8:00 on Monday...

But that was about as rosy as the day ever got for the ZAR.

The trend was made clear right from the start, as the market lost ground badly during the morning.

This continued through the afternoon, and by the SA close, the rate was over R13.20/$...

Was this going to be the story of the week?

We were convinced it was going to be, as the market was moving perfectly in line with our forecast from Friday so far. So while America enjoyed the build-up to their 4th of July celebrations, things were not looking so good on the local side of the pond.

The weakness was put down to a lot of things... some even citing the following: "The liquidity in the market is very thin today, because of the 4th of July long weekend in the US," Wichard Cilliers, director and head of dealing at TreasuryOne, told Fin24.

Sounds like a longshot...who knows whether it is accurate or not!

What really mattered was that we were on to Tuesday, and with the Rand over R13.20, and the Euro and Pound moving over 15 and 17 respectively, the ZAR was losing ground on all fronts.

It was also Independence Day in the US, so all the fireworks would most probably be of the literal kind, and not the market related ones!

And that was pretty much how the day went, as the Rand managed to keep the peace for a day, and actually was trading stronger by the time the following morning rolled around.

Considering the days past, Saffers would have been happy to come out at R13.18/$ on Wednesday morning...

...only for the good work to go up in smoke in the blink of an eye.

With focus on US FOMC meeting minutes, with all eyes on indicators for a Fed Hike, the Rand took a pounding.

Also, with the ANC policy conference coming to a close, it was due to be a big day.
And as always, the markets delivered.

Horribly.

A peaceful 24 hours was destroyed as the Rand rushed from R13.15/$ at 10am, to R13.47 in less than 3 hours!

This was exactly as per our forecast - having this on Monday morning could have been absolutely crucial for anyone involved in Forex...

So...all good work undone ... and then some!

What news could have triggered this?

Well...

There was this news from the ANC policy conference...

The proposal by the African National Congress (ANC) that the central bank should be wholly state-owned rather than an institution with private shareholders (a policy which would put the money of the entire country in the ANC's hands, opening to door to further theft and corruption) has undoubtedly has investors jittering...

“The net effect is zero but I think investors are on edge given that the mandate of the bank has been questioned and targeted in a very political way,” Rashaad Tayob, portfolio manager at Abax Investments in Cape Town, said...and why wouldn't they be? It is a terrifying prospect!

As for the Rand, it traded as high as R13.49 before retracing slightly...

Phew. What a day.

And despite another "own goal" as regards the proposal to nationalize the SARB, the Rand managed to just hang on throughout Thursday...

Although a high of 13.51 was made, the Rand held it together and made it to the early 13.40s at the close.

All talk was still on the ANC proposal, with things sitting on a knife edge.

It was expected that the slight bit of bad news could be the trigger to the next trend upward.

For now though, the forecast had followed our prediction of a brief consolidation downwards, and now we were to brace ourselves for the break higher...

And Friday sure had the events for some action to be happening...

With US Jobs numbers (small event, but widely talked about) and Non-Farm Payrolls (huge event all round) both due on at 14:30, there certainly was no lack of triggers...

And initially the market was on the up - before 11am, the market had already punched as high as R13.53!

But from there, it looked as if the Rand was changing course...

...and by the time the events of the week actually rolled around , the market was trading well below R13.40/$.

Most surprising of all, after the events, the Rand strengthened all the more!

US Job numbers came through excellently, with a cracking 222,000 jobs were added, with employment rate falling to just 4.4%...(these numbers just sound like a fantasy when you compare to SA's underestimated 26.6%...)

Yet, the Rand strengthened, to touch around R13.30/$!

It did return from that spike, and closed the day around R13.40...and that was a wrap.

As for the week ahead...

With the Rand now trading a good way over R13/$, it definitely looks like the extended period that was enjoyed of the Rand in the R12s, is now over...

...(that is, at least for the time being)

With calls to nationalize the bank, land expropriation without compensation and more, it is not looking pretty for the Rand.

But...more often than not, the market responds in exactly the opposite fashion to how we expect.

Events are the trigger. Sentiment is the direction giver. We cannot stress that enough.

And at least for the coming week, the horizon looks fairly clear of any significant economic events, although some are sometimes scheduled late.

So what is it going to be?

Trust the forecasts - that's all.

All the best,
James