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I'm no Nostradamus - But the rand is in major trouble

by , 23 November 2021
I'm no Nostradamus - But the rand is in major trouble
The rand has really taken a beating this year.
  
In July I wrote an article, From Lockdown 4 to Jumanji - Here's why I'm selling the rand. I predicted that the rand would fall from R14.30 to R15.58.
 
This was due to local reasons such as the looting that took place, the slow vaccination roll-out as well as a bearish chart pattern. 
 
And to catch you up, you’ll know the price target was hit this month.
 
Now it looks like the rand is about to drop even more. 
 
Of course, I’m no Nostradamus, but I can tell you that I think the rand is in major trouble… 
 
Here’s why I’m raising the price target of the rand to R16.40 to the US dollar.
 
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Emerging currencies world-wide are bringing down the rand 
 
With the Federal Reserve in the US expecting to raise interest rates to dampen inflation, and with the US dollar on the rise, emerging currencies are getting crushed…
 
Just to put it into perspective, the Aussie and Kiwi dollar pairs have weakened over 4.57% and 6.61% respectively this year. And Turkey’s lira has dropped to $10.09 (-6%) in just one year. 
 
This is due to the US dollar strengthening and very few policies in place to tackle the recent economic issues. 
 
Here’s what Jakob Christensen, head of EM research at Danske Bank, said:
 
“Turkey is hit by a perfect storm of Fed tightening, a stronger dollar and higher oil prices. We have been very bearish on the lira as we see no policies in place to tackle the economic pressures and, with them also cutting rates again, it is an economic suicide,”
 
As we know, when other EM currencies weaken, the rand tends to follow. 
 
But that’s not all.
 
Why this W Formation is showing strong upside for the US dollar against the rand
 
 
In the daily chart of the USD/ZAR, we can see it’s been moving in a sideways pattern since August 2021. 
 
This pattern is known as a W Formation (shaded area). 
  
Basically, this formation has two rounding bottoms, that resemble the letter ‘W’. 
  
Now that the pattern is complete and the price has broken out of the W Formation, it means we should see more buying for the US dollar against the rand, which will drive the US dollar higher. 
  
To calculate the price target, we’ll take the difference between the high and low of the formation and we’ll add it to the high.
  
Price target = (High price – Low price) + High price
                  = (R15.20 – R14.00) + R15.20
                  = R16.40
  
This means, we can expect the rand to weaken all the way to R16.40 in the next few weeks.
 
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Here’s how we’ll profit from the crashing rand
  
There are two main ways you can profit from the weakening rand.
  
I’ll go long (buy) the USD/ZAR CFDs and hold it until it hits the price target of R16.40 to the US dollar.
  
Second, I’m going to re-look at buying into the resource and industrial stocks that rise when the rand weakens.
 
I’m talking about companies like Kumba Iron Ore, Anglo American, Anglo Gold, BHP Billiton and even Glencore. 
  
The last time we bought Anglo American and BHP Billiton we banked 63% and 73.12% in just a few days. 
  
  
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Timon Rossolimos,
Analyst, Red Hot Storm Trader
 


I'm no Nostradamus - But the rand is in major trouble
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