Ricochet News

Rand holds strong - where to next?

By James Paynter - Oct 28, 2019
Rand holds strong - where to next?

Another week, and another win for the Rand as it continues to fight the global and local pressures and prevail over them both...

Economists were left confounded once again that despite all that was ongoing, the market maintained its position of strength...

...once again proving that news & fundamentals are triggers, not direction-givers.

The need for clarity to see through all the noise at the moment is very necessary...and we look to the Elliott Wave Principle to do that for us.

Let's show you what it told us - ahead of time...

 

Key Moments (21-25 Oct 2019)

 

With the Rand sitting at R14.83 on Friday before the week began, we analyzed the market using Elliott Wave together with our combination of price relationship, momentum and cycle studies - and came out with a prediction for the next few days.

From the preferred wave count, we saw wave 5 extending further down into the 14.68-14.48 area over the coming days, despite worries over Brexit, Trade Wars, Eskom and the upcoming mid-term budget... (see below - click to enlarge)

 

 

And then it was a case of wait and see...

And see we did, with plenty of action:

  • Brexit talks - it all fell flat once again despite Johnson's best efforts as the UK MPs shot his plan down...what now as 31 October deadline nears?
  • Eskom & Load shedding- the risk of load shedding is still high as we wait for clarity on Eskom's financials following ANOTHER bailout...
  • SA Inflation - SARB continues to manage the situation well as the latest inflation figures from this week made for (mostly) good reading.
  • DA capitulation- the leading opposition to the ANC seems to be in self-destruction mode...

The big news from over the weekend from the UK was that UK MPs had shot down the next plan from Boris Johnson, and the Brexit deadline was looming just 10 or so days on...

An extension on ‘Brexit’ was then requested from the EU but Boris was still adamant he could get it done by 31 October...

...but a couple of days later, he requested a pre-Christmas general election, with the terms being that if this was granted, then he would give MPs more time to debate his Brexit deal.

As for the extension request, the EU continued to delay a decision on how long this would be until the following Monday or Tuesday, leaving it perilously close to the October 31 deadline. France was not interested in a 3-month extension which was what Parliament was seeking, and was piling on the pressure to end this ongoing mess.

And what a mess it has been...!

The Pound lost ground against majors during the course of the week, as well as the Rand, as it turned around on the recent momentum on the GBPZAR.

This ever-changing story is so hard to keep up with, and who knows when it will come to a close...

At the same time, SA had its own fair share of politics going on with the DA in rather a shambles:

  • In just one week, there was the resignation of Herman Mashaba, Mmusi Maimane and Athol Trollip.
  • This followed Helen Zille's appointment as the Federal Council Chairperson - a return to the party that she really transformed herself all those years ago.
  • But with 3 of the most key figures in the DA gone, it remains to be seen if the main opposition party to the ANC can ever recover

Despite all of this going on, the Rand followed exactly as per our predictions from the Friday, breaking down lower into the sub R14.60 area:

 

And then in other news:

  • Load shedding seemed to be a bit more under control this last week, as Eskom’s generator capacity has recovered. Despite this, expectation was for more load shedding through the summer with poor maintenance and old power plants plaguing the SOE. This last week saw the next Eskom bailout, this time for R59bn in order to keep the lights on across the country. One feels that Mboweni's Budget speech this week is going to be crucial to get clarity over the SOE's future, and to convince Moody's that good things are coming, if they have a little more patience...
  • Foreign purchases of local bonds ramped up a level this last week, with in excess of R6 billion being bought in just 4 days. Investors continue to be risk-on despite the shaky global climate, and for now, SA is the beneficiary of that. In other news, SA September inflation figures fell to 4.1%, down from 4.3% in August, which (while low) is in line with the SARB’s expectation, and with that also came good news of expected petrol price reduction - following lower oil prices and the stronger Rand.
  • After 8 years at the helm of the ECB, Mario Draghi held his last meeting as President of the Central Bank. Draghi’s term will be remembered for QE, low inflation rates and most notably dealing with the sovereign debt crisis in Greece. In the final meeting, he announced that interest rates would remain the same.
  • And some final news which was certainly not the best of the week: SA government's cumulative irregular spend is now higher than its budget for police and defence, at a whopping R175bn...unbelievable!

As for the Rand, there was some retracement back up toward the R14.70 mark...before Friday saw more Rand strength against the Dollar breaking to below R14.60, as well as against the Euro and Pound, breaking lower against all 3 to end the week on a high note!

And that was the wrap!

 

The Week Ahead (28 Oct - 1 Nov 2019)

 

As we head into the last week of October, this is unlikely to be damb squib at all.

In fact, expect just the opposite, with some major economic events to look out for as triggers during the week (Brexit deadline, Fed interest rate decision, SA Trade balances), culminating in two potentially HUGE triggers on Friday:

  • US Non-Farm Payrolls
  • Moody’s Credit Rating Decision

So, fasten your seat-belts, this could be a rollercoaster ride of note!

As for the Rand, the question is - can it extend its gains of the past few weeks?

Our Elliott Wave analysis suggests it is starting to run out of steam short-term, but we are looking at some key levels to confirm direction in the coming weeks.

To get a look at what we are speaking about, use the link below to get access to our forecasts for the next 14 days.

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Look forward to sharing my outlook with you.

To your success~

James Paynter

P.S. If you have Rand exposures, your emotions are likely to take over with Moody's credit rating decision. Don't let that happen - emotionally-charged decisions are often your worst decisions ever. In times like these, you need an objective view to offset this default mode.

Be my guest and take our forecasting service for a free trial!

Simply use the button below to get our latest outlook.

 

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