Ricochet News

USD ZAR forecast - Rollercoaster Rand follows the Elliott Wave Principle

By James Paynter - Feb 17, 2020
USD ZAR forecast - Rollercoaster Rand follows the Elliott Wave Principle

Another interesting week for the Rand passes... And what made it really interesting was how the Elliott Wave Principle telegraphed most of the week's moves before they even happened!

The global news and SOE troubles continue to dominate headlines, keeping the markets volatile and investors on their toes.

Yet, all in all, the Rand ended in the 'green' - stronger than where it began.

And the question is, as always, where are we going from here?

Let's get into the full review & look forward!

 

Key Moments (Feb 10-14 2020)

 

The already weakened Rand began the week rather shaky over R15/$...

But our subscribers had the way forward mapped out with our forecast of 7 February, giving them the roadmap for the week ahead. While there was a chance of the Rand pushing a little higher to touch R15.12 again, it was due to top out shortly, heading lower toward R14.94 and below... (see below & click to enlarge)

 

 

It was an interesting few days which followed...

...and here are some of the biggest events (triggers) from the course of the 5 days:

  • SONA 2020- Ramaphosa's 3rd State of the Nation address...and surely his most difficult yet with Moody's breathing down his neck.
  • Coronavirus - the ever-increasing effect of the virus is now being felt worldwide, as the China shutdown has stunted global business.
  • Eskom - as for local business, Eskom seemed to be doing its best to stunt that with ongoing load shedding...but was there some light at the other end of the tunnel?
  • Trade & economics - all the latest updates from around the world!

And right from the go, the Rand was on the move lower...as per our forecast.

Then, thanks to the swift moves, we issued another forecast on Tuesday, ahead of our normal schedule for Wednesday, in order to keep our subscribers up to date.

It showed us at R14.9013, with the expectation for the market to break lower into the R14.89-14.73 target area before we would then see the market retrace higher…(see below - click to enlarge)

 

 

And so the Rand continued, with the first half of the week seeing the market make it's way down lower, hitting a low of R14.73 early on Wednesday morning...

...and as per forecasts, it bounced right off that R14.73 support!

On upwards higher we went, as per predictions!

It was a real rollercoaster, but the market was behaving according to the Elliott Wave Principle - as it very often does...

Wednesday brought our next forecast, which has also been accurate thus far...but this one is exclusively for subscribers. To get a look at our latest predictions, grab a 14-day trial over here. On the house.

 

 

The build up of the whole week was toward SONA...

Ramaphosa's most difficult assignment yet, as he tried to balance between the Eskom situation, the urgent need for growth, the need to make hard decisions, SAA, and much more...

With SA’s fiscus in steady decline, the 2020 Budget scheduled in two weeks will be closely monitored by investors (and, more importantly, Moody's).

With the 2020 Budget around the corner and Moody’s credit rating decision at the end of March, it has to be a stellar performance. A rating downgrade may be on the cards should National Treasury not announce large reductions in spending forecasts.

As for how the SONA went...well, what would a SONA be without EFF interruption?

But after the usual shouting, fighting, and general nonsense, Ramaphosa outlined some key points:

  • More investment conferences in an attempt to attract R1.2 trillion worth of foreign investments over the next 5 years.
  • Establishing a state bank and sovereign wealth fund that will extend access to financial services to all South Africans.
  • Business practitioners expected to unveil their plans for restructuring SAA in the next few weeks.
  • The government would make it easy for independent power producers to get certification to build and run plants above 1MW.
  • Municipalities in “good financial standing”, would be allowed to procure their own power from independent power producers.
  • Six-pronged plan to fight youth unemployment, which includes skill-building and the expansion of the existing Youth Employment Services.

Ramaphosa declared that: “this is the year we fix the fundamentals”.

As always, it will be a question of "walking the talk" - many things get said every year, BUT how much actually gets done?

(What a contrast with US President Trump's SONA of last week...)

So while Ramaphosa attempted to deliver a motivational speech, balancing between reality and possibility/potential, many South Africans (and likely Moody's) are going to be waiting for Mboweni's budget speech. He has a way of getting into the nitty-gritty very quickly and being brutally honest - as well as providing the nuts and bolts as to how everything is going to work out.

In an unusual fashion, the Rand was calm as Ramaphosa outlined his (honest but overly optimistic) plans to resolve the grim state in which the country finds itself...

 

 

What a contrast to previous SONA's, in which we saw wild swings from the ZAR...!

Once again proving: events are merely potential triggers …NOT direction-givers.

 

 

And then in other news:

  • A claimed decline in the number of new Coronavirus cases diminished investor concerns in the first half of the week, with some confidence that the effects of the virus would be limited to the first quarter. This was very short-lived however, as a huge spike in new COVID-19 cases and deaths highlighted that the virus was anything but under control. This increase was put down to a new method of how cased were tabulated - but that didn't explain the spike in fatalities as well. There is increasing concern that the Chinese Communist Party (which is notorious for conveniently modifying the facts to suit its agenda), is not only hiding the true source of the virus outbreak (Wuhan is China's centre for biological research), but is also blatantly downplaying how bad and out of control the epidemic is, with some sources saying the number is likely greater than 50,000 dead - not the 1400-odd reported...
  • Over in the US, Jerome Powell stressed that the Fed are closely monitoring the impact of the virus on China and the rest of the world. Regarding interest rates, Powell stated that monetary policy is well positioned after a series of rate cuts in 2019.
  • Locally, SA's unemployment rate stayed stagnant at rotten 29.1%, and along with that, factory ouput slumped by 5.9% in December - likely due to the shutdown & Eskom combining to a perfect storm.
  • And for those interested in Crypto, Bitcoin was back over $10,000 again! This is actually as per our forecasts from the last year...(did you know we forecast Crypto?)

    It's over here on our sister site: https://dynamicforexsolutions.com
  • As for Eish-Kom, the country battled their way through another week of load-shedding, which continues to be like a straight jacket on the economy, crippling its ability to move. Bloomberg warned this last week as to how much Eskom hurts the economy in reality… and new Eskom CEO André de Ruyter’s warned that if operational efficiencies aren’t improved drastically, we can expect load shedding to continue for the next 18 months.
  • South African gold output surged the most in four years in December, providing an unexpected boost for the country’s mining production. Gold output rose by 24.9% from a year earlier, compared with a revised 4.5% in November, according to Statistics South Africa. That was the biggest increase since January 2016 and helped total mining production to grow by 1.8%, the first expansion in five months.

And that brought us to the wrap, with the Rand easing its way to the close in and around R14.90...

It had been a really up and down week for the ZAR...but all in all, it ended slightly stronger than where it began.

 

The Week Ahead (17-21 Feb 2020)

 

And as we head into the second half of February, there is not much in terms of economic data to provide potential triggers, with US FOMC and ECB meeting minutes being two that will likely be the most scrutinized.

But there is plenty to keep the market on its toes, from ongoing Eskom woes to digesting Ramaphosa's SONA last week, to determine the global effects from the developing coronavirus epidemic.

And, then, of course, there is the anticipation of Mboweni's Budget speech (26 February), which Credit Rating Agency Moody’s will watch closely as they prepare their next review for the 27th of March.

Where does this all leave the Rand?

Well, it has enjoyed a better week than last, but risks still abound. We have a couple of potential Elliott Wave counts that are playing out, with some key levels to watch.

To get a look at what we are speaking about, use the link below to get access to the latest forecast. No charge. All yours for 14 days.

 

Click here get 14 days Free Trial

 

I look forward to seeing you on the inside - and sharing this with you.

To your success~

James Paynter

 

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