The unthinkable happened, as a battered and bruised ZAR managed to dragged itself over the line to end off a rather disastrous week...
We had given a hint in last week's Rand Review that the Rand's excursion below 12.00 had come to an end - and that we were in for a rough ride. But it seemed everyone was trying to put it out of their minds, like it would never happen.
Well, this week, it did.
Exactly per our forecast of the previous Friday
And exactly the opposite to what economists were saying it was going to do.
Another fascinating week in the financial world...
...let's take a look at how it played out!
On Friday, our forecast for the week warned of soon arriving Rand weakness - a push up to R12.33-12.47 was expected within the next few days. All our subscribers were forewarned of this, and were hopefully able to take action...
Click to enlargeSome key moments which we saw during the course of the 5 days are worth mentioning:
- Rand crash - despite an extended period of Rand strength and Dollar weakness, our Rand Review from last week called it...the bear run was over!
- North & South Korea - in amazing turn of events, the two Presidents have agreed to end the Korean war, and remove nuclear weapons from the peninsula
- Oil price - it continued to push $70/barrel, as the pinch was felt worldwide with basic commodities such as fuel prices skyrocketing...
- Public sector worries - Ramaphosa is under real pressure as the bus strike continued - and as the weekend arrived, there was still no resolution.
- Investors flock to the US - a stronger Dollar has meant a return of investors to the US, with higher interest rates also enticing many...
- Cape Town gets rain - and lots of it, taking the city from dry ground to flooding in a few hours!
- Economists are left floundering - despite expectations form economists that the Rand would hold onto its gains after breaking R12/$, it did not...not even close, to be exact! We'll take a look at why it happens like this so often...
Often, the Rand itself gets overshadowed by the events around it.
This week, nothing was stopping the Rand being in the news.
But it was in the news for all the wrong reasons, as significant ground was lost versus the three majors - USD, EUR and GBP.
On the USD/ZAR, we even saw a brief touch of R12.53 - close to its worst level for 2018...
And that brings us to the most interesting part of this last week:
The fundamental economist's view...
The economist views things in a very different light to us. They look to events. They look to politics. They look to economic stats and figures to try and get some fix on where the Rand is headed.
And based on that, they make a calculated assumption - "If this happens, then the Rand obviously do that." And vice versa.
You may well be one of these persons.
It is understandable if you are, because human nature is like that. It wants rational reasons for why things happen. If there is not some clear explanation, then we look for some information that will give some logical explanation to what has happened, and what should happen next.
Such is human nature.
But this approach is flawed when it comes to financial markets...and it will see you being on the losing side more often than not
Which is exactly what we saw this last week.
As the Rand had struck back below R12 on the previous Friday (20th of April - the same date as our forecast above), this article circulated, that "analysts say the Rand is poised to hold its gains" as it broke below the "psychological R12/$level"
What they say is quite correct - it IS a psychological level, which is why you must BEWARE of it!
Psychological levels and gut-feel will not get you anywhere - as it showed in the coming days...
So...if you are trusting economist backward looking views to give you a picture of the future, let this be a lesson...
You do so at YOUR peril!
I know because I have been there, done that.
I tried to make rational sense of irrational market moves for years. And it doesn't work. And you will be left frustrated, stressed and poorer for it - almost every time.
By contrast, the Elliott Wave Principle and forecasting methodology that we use is not perfect...but it is more consistent than any predictions based on economics, politics and gut-feel.
Guaranteed.
For this reason, we should clarify our goal with these Weekly Rand Reviews - it is not to let you, our valued client, get tangled up in the hubbub and noise of all that goes on.
We seek to purely be informative. And then show how our forecasts are able to cut through the noise, to give you a clear outlook for the likely road ahead.
Moving on, to recap on a few more key events from this last week...
- The bus strike has continued to plague the whole week which was meant to be ending in celebration with Freedom Day on Friday. Far be the thought. The strike continued on through Friday, and looked poised to continue the whole weekend, as Blade Nzimande and Mildred Oliphant were unable to shake them on Thursday evening...
- This strike has been of grave concern to Ramaphosa, as it is in direct contradiction to the pledge of his administration. They seek to stick to their deficit targets, but currently he has 1.3 million workers demanding up to 12% in increases. This would be catastrophic for government spending...as highlighted in this excellent article on Fin24, such as the unions playing a key role in him being elected last year.
Of course, on the flip side, Ramaphosa must have been pleased with positive reports that if he were to pull off his plan of R1.2 trillion in investments over the next 5 years, SA could achieve between 4-4.5% in growth from 2020 onwards...
...sounds all very rosy, but we remain skeptical - for the reasons spelt out in last week's Rand Review
Another major talking point of the week was the Dollar strength, as it set a near 4-month high against the majors and rand alike.
And if you listened to economist logic, it supposedly had been boosted by the rise in US 10 year treasury yields (US Government instruments used to source funds for capital projects) - which was triggered by an oil rally ... that has spurred inflation fears.
Clear as mud as always...I wouldn't pay much attention to it!
Our forecast midweek showed the Rand poised at R12.42...but this scenario is still playing out. And unfortunately, this is exclusively available to our subscribers, but you can get a free peek here.
Finally, the week closed out with news of North & South Korea -
In an amazing turn of events, they vowed to negotiate a treaty to replace a truce that has kept a very shaky peace on the divided Korean
Peninsula for more than six decades, as Kim Jong Un became the first ever North Korean leader to walk over the border into South Korea.
He even committed to denuclearization and talks to bring a formal end to the conflict.
That said, I would not take my eye off him though - anyone who takes out his uncle with anti-aircraft guns is not someone to be trusted...
...on this note the short week ended, with the Rand having recovered somewhat to just over R12.30...
The Week Ahead (30 Apr - 4 May 2018) |
Monday blues started early and in earnest today, with the Rand having lost significant ground - with potential for the slide to continue.
There are some high impact events that could provide triggers for big moves this week - mostly coming out of the US (you can see these in our fundamental events when you take your trial).
While not direction-givers, nevertheless we need to know when these events are due to prepare.
So another volatile week, with probably plenty to distract and cloud your forex decisions...
So then, how do we keep focused in such times?
Simply by keeping our eyes on what the sentiment patterns themselves are telling us, which will allow us to take action to protect ourselves (or take advantage) in time - instead of looking back with regret, anger and frustration after the fact....
To see the outlook for the next few days, weeks, months and years, simply click below - and see the difference it will make to your forex decisions.
Kind regards,
James Paynter
