Rand tests R14.50 before US Jobs Report

Rand roars stronger on global news - is R14/$ next?

Another week, another rough ride for the Rand! The unwinding of the positive sentiment of the last few months has not taken long, as the Rand now sits more than 110c higher than it’s June position of strength.

It has not been helped by yet more economic-suffocation from the government…

Big business, small business, you name it – everyone loses from more lockdowns.

And yet they keep coming back, destroying livelihood after livelihood – with no scientific backing whatever that these are effective – in fact, just the opposite!

Surely rational thinking has to at some stage stop this irrationality?

In the time being, we just watch the patterns in the markets and how this all unfolds. The fact is that events like these just provide triggers for the underlying sentiment. Sentiment that our Elliott Wave based forecasting system has been watching for some time… Let’s take a deeper dive into that!

Key Moments (28 June – 2 July 2021)

Before the week began, our outlook was for Short Term on the USDZAR on Friday, June 25th

It showed the market at 14.13, with the ZAR having pulled back a touch, but our count as showing the trend as not due to stop just yet, with the target area of 14.43-14.75 in the USDZAR’s sights…

It was going to be an interesting few days!

And interesting it was – these were the biggest headlines from the week:

  • Lockdown Level 4 – as the tables turn once again, SA is heading back down into lockdown for what feels like the 100th time…what next?
  • US Jobs – huge job gains but yet still not enough to convince of economic recovery, and everyone continues to watch economic numbers with anticipation
  • Eskom & Zimbabwe Situation – while Eskom is only just managing to meet demand locally (some of the time), Zimbabwe is tapping off large amounts of electricity to help their supply keep afloat…

And the week began with the Rand on the back foot, as the announcements from Rampahosa’s Family Meeting on Sunday evening, and from the get-go, the local unit was weakening.

Ramaphosa’s announcement was devastating, as many believed their businesses were finally in clear, and their freedoms returning.

No such luck.

Following UK and European governments attempt to keep the ‘pandemic’ narrative alive, Ramaphosa once again shut down:

  • Restaurants
  • Gyms
  • Bars
  • Transit between provinces for anything other than business or transport of goods
  • Sale of Alcohol
  • And more…

The Rand did not react to this well, moving steadily weaker through Monday.

By Tuesday, we were upward of R14.35 …and so the trend continued.

SARB said that Level 4 would not derail the economy, but that repo rate can’t stay at 3.5% forever. The fact is that damage is being done, and who can really define what derailing the economy would be.

Onwards went the local unit through the week, eventually pushing upwards of R14.43, our target area, late on Thursday evening. The trends had played out just as per the Elliott Wave Count, and some of these moves have been critical in long term counts and outlooks.

And then in other news:

  • Eskom remains a point of focus, as the power utility company is in the hot seat to try and provide information on how they are going to manage the transition away from fossil fuels. Enormous funding is needed to become compliant, as SA sits at 12th worst in terms of greenhouse gasses. Yet at the same time, they have to try and continue to meet demand that they are already battling with. But what does not make sense is that Zimbabwe, who is now facing prolonged power outages, is still importing huge amounts of electricity from SA. Surely it has to be a case of looking after home base first, which would free up supply to have some surplus and allow for work on maintenance etc? Certainly not everything makes sense when it comes to SOEs… Eskom has now brought it’s debt under R400 billion, and now is talking about funding for renewable energy projects…
  • SA’s trade balance came in R8.1 billion above expectations thanks to the high demand (and therefore prices) of global commodities. On the US side, things were quite different, as the trade deficit widened to the second-biggest on record! The gap in trade of goods and services rose 3.1% to $71.2 billion in May from a revised $69.1 billion in April. That compares with a median estimate for a shortfall of $71.3 billion in a Bloomberg survey of economists.
  • Staying on local shores, yesterday we saw a “Victory for the rule of law” as the Constitutional court handed former President Jacob Zuma a 15-month prison sentence for contempt, sending a rather powerful message and warning to many political operatives who have been questioning the authority of the judiciary. But opposition remains as former ANC councillor in the Nelson Mandela Bay municipality, Andile Lungisa, is calling for a nationwide shutdown in support of former president Jacob Zuma.
  • In the US, the Fed have ensured a smooth transition when withdrawing from their current monetary stimulus program once economic recovery is under way. This comes as investors fear a repeat of 2013’s taper tantrum rise in treasury yields. In the unsteady and fast changing economic ground beneath their feet, investors are really looking for a steady hand from the Fed – but do they actually have the ability to manage the situation? I think many are starting to worry as the debt levels just continue to rise…

Getting back to the local unit, we saw the Rand break even higher to hit over R14.50, a level we have not seen since early May!

And then the US Jobs report hit – and things took a turn!

The US added 850,000 jobs, which was significantly better than the expected 706,000 – so that should have all been good news…

…yet the unemployment rate rose higher to 5.9% from 5.6%.

And with that, the markets took a turn.

The USD/ZAR changed by all of 25c during Friday afternoon, and before you knew it, the market was back testing R14.25 again!

So a very interesting week of back and forth trade…

…but once again, our Elliott Wave based forecasting system had called it! Onwards to the next week as we look for the direction of the bigger trend in the coming weeks.

The Week Ahead (5-9 July 2021)

As we have now crossed the halfway point of the year, we are on the downhill for the remaining 6 months!

Crazy how time flies.

Next week is setting up to be really interesting, as we know that the quiet markets can only last so long. It is a quieter week with US Independence Day observed on Monday trade, but here are some of the noteworthy events for the week:

  • US – FOMC Minutes, Jobless claims
  • EU & UK – Retail Sales

With plenty going on politically, economically and socially around the globe, we should expect the unexpected.

But when it comes to the markets, we will continue to filter out the noise and simply follow the what the charts themselves are telling us, based on our Elliott Wave based forecasting system. I suggest you do the same!

Please take our Rand forecasting service for a test-drive! This will give you access to the same charts we are to give us and our clients the likely direction of the Rand – ahead of time, enabling you to make educated and informed decision. Simply use the link below to get access now. No charge. No card. All yours to trial for 14 days.

Click here to access to our forecast from Friday on the house!

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

To your success~ James Paynter

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