Rand Roars Toward R17/$… Did You See It Coming?

rand

As things hotted up in the US, the Rand traded yet stronger against the Dollar much to importers’ delight, tracking perfectly as per our Elliott Wave count…

And once again, it was a defying of negative local news, as the ZAR tested it’s strongest levels this month.

The defying of expectations in so many markets has continued in the pandemic in a spectacular way. For example in the stock markets, which continue to rise ever higher despite everything seemingly on fire around them.

Do not be fooled.

Reality will hit, and don’t be surprised if it is soon, particularly in the case of the stock markets.

This just proves the value of an emotion-free system to follow markets, as logic could never have predicted how the last few months would play out.

So let’s take a look at this last week from the perspective of our Elliott Wave based forecasting system, when it comes to the Rand…

Key Moments (17-21 August 2020)

So before the week began, our forecasts were released on Friday for the USDZAR (shown below), as well as the EURZAR and GBPZAR.

The USDZAR outlook for the next few days was fairly clear cut – with the market at R17.38 at the open, our count showed us heading town to test at least R17.17 and below to the Dollar.

USD/ZAR Short Term Outlook

And so now it was to watch whether the ZAR had the gas to make the extra yards down to that target area.

On the side of news, we had plenty of events:

  • De-Lockdown – …finally! Ramaphosa moved SA across to level two, significantly reducing restrictions countrywide
  • Eskom woes – the trouble-filled power provider continued on the same trend as load shedding plagued the economy once again…
  • US politics – all the talk is on the election now as Joe Biden received the official nomination from the Democratic party
  • China/US tensions continue – no trade talks, and further actions against Chinese companies meant that the high pressure situation continued

Right… so to start the week, we had the Rand trading gently in the R17.30s, as we looked to see what the days ahead would hold.

And to start the week was some good news for Saffers with Ramaphosa’s decision to finally lift restrictions to level 2! This meant wide-sweeping changes such as:

  • Removal of travel ban between provinces
  • Removal of alcohol & tobacco ban
  • Allowing restaurants, taverns etc to return to normal business, although with strict hygiene regulations

Sadly, it was proof that the lockdown had not worked – despite SA having one of the strictest globally, the cases have grown exponentially, and it has been to little effect.

Ramaphosa’s action now is basically an admission of guilt that it hasn’t, as the case count continues to climb, albeit not as fast. The only thing it has been effective with doing is crippling businesses and consumers alike – already in March, nearly 50% of active credit consumers in SA were behind on payments – and where that sits today can only be worse…

It is a dire situation with not too many positives to look at, and the key lies in the utilisation of funds loaned by IMF and other institutions to try kick-start everything again…

So, what about the Rand?

Well, despite this good news being announced, the market weakened to around the R17.50 level… counter to logic once again!

But quickly this weakening unravelled on Tuesday as we saw the Rand break stronger over Tuesday and Wednesday:

USD/ZAR

This once again left many stumped, as it was Eskom who took centre stage during this time with more load shedding. A mix of Stage 1 and Stage 2 load shedding meant that while business was back to work, it was a stop-start affair… for how much longer will this economic-drag exist?

Well, this is not a simple question to answer – with aged infrastructure really taking strain, there are no quick fixes.

Regardless, the Rand had moved exactly as per our forecasts again, breaking as strong as R17.11 to the Dollar, right in our target area from Friday.

And then in other news:

  • The economy is a major talking point for the upcoming US election, and it looks as if it will remain one leading into November, with jobless claims unexpectedly rising yet again to more than 1 million this last week. After jobless claims seemingly just being under control, this was a shock for everyone to see them rise back up again…
New state and federal (PUA) jobless claims since start of pandemic
  • And then there was what the IRS released in their predictions for American payroll over the coming years, and it did not make for pretty reading. It looks as if payroll will not even recover to 2019 levels by the time 2027 rolls around, based on their projections. It is clear that the much hoped for V-shaped recovery is nothing but a pipedream…
Employment Rut
  • Staying in the US, the tensions with China have not improved at all, with trade talks this last week having been cancelled. Combining that with the US actions on Chinese companies, it doesn’t make for a pretty situation as things stand. For South Africans, this is a mixed bag of good and bad news, because many local companies have benefited in exports, due to the world’s anti-China drive.

And as for the Rand in the midst of all of this, it rebounded on Wednesday after breaking into our target area, but our forecast on Wednesday evening confirmed that we should see another break into the same R17.17 and below area… and so it did on Thursday as the market tested up around R17.35 – before strengthening back down to below R17.10 on Friday afternoon!

USD/ZAR Short Term Outlook

And that was the wrap, as the rand enjoyed another fantastic week!

The Week Ahead (24-28 August 2020)

As we look to the week ahead, we have several events, but nothing too big coming up over the next few days:

  • SA – Inflation Rate
  • USA – Jobless claims, Goods Trade Balance & Durable Goods Orders

Over in the US, stimulus ideas will likely be tabled again sometime soon, as well as the Republican convention going ahead as the real countdown to the election begins…

But don’t expect things to be any less volatile, as the markets continue to defy the odds.

Where does this leave the Rand?

The market has entered our targets so we will be watching the price levels to confirm our preferred outlook for a bottoming out soon, based on our Elliott Wave based forecasting system.

It is likely to be an interesting week once again.

If you have any questions or feedback, please let me know.

To your success~

James Paynter

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