The rise of the Ringgit has been due to the weakness in the US Dollar. The USD/MYR has been in a downtrend ever since the appearance of the monthly double top. Or to put it in another way, the MYR/USD has been in an uptrend ever since the appearance of the monthly double bottom.
We will begin the analysis of the USD/MYR from a top down perspective. From 50,000 feet down to 10,000 feet.
The chart above is the monthly chart of USD/MYR.
As you can see, the pair formed a monthly double top. This was confirmed with a bollinger band divergence and MACD divergence. Whenever a stock or index or forex pair forms a double top or double bottom, we can use indicators to spot for bullish or bearish divergence.
There are many traders who like to trade divergences. They can often be a very powerful trading strategy.
After forming a double top, the USD/MYR has been declining ever since. There was also another bearish signal after the pair formed a double top. It broke a long term uptrend line.
The USD/MYR is currently quite oversold in the monthly chart. That is something for us to take note off.
I actually did a piece on the USD/MYR last year. Many of you would have remembered that. How The USD/MYR Pointed To A Big Bull Run In The Malaysian Stock Market. The Malaysian stock market usually does well when we have a strong Ringgit compared to the USD.
When the USD becomes too strong, it can cause a stock market crash in Malaysia.
Which is why if you invest in Malaysian stocks, you should always study the intermarket relationship between the KLCI and the USD/MYR.
It is always a good idea to look at things from another point of view. Since the USD/MYR is a forex pair, we can often reverse the base currency so that we can look at the pair in a different way.
The chart above is the monthly chart of MYR/USD.
Where the USD/MYR formed a double top, the MYR/USD formed a double bottom complete with a bullish divergence in the indicators. It broke a downtrend line and then moved higher.
Let us now zoom into the weekly chart for a closer study of the pair.
After declining so much, the USD/MYR is now at a long term area of support. There are two scenarios we can expect whenever a financial instrument reaches a support area. Either they will bounce up or consolidate and go down again.
So far, the picture is still developing in the daily chart. Therefore, we will need to look at the daily chart from time to time to see how the pair is developing.
In the event that the USD/MYR drops below support, the next area of support for us to watch is the 3.70 area.
So, is a strong Ringgit good or bad for Malaysia?
There are many arguments for or against this. If your currency is strong, your citizens get to buy more stuff cheaper. Travel is much more affordable. On the other hand, the country will lose out to competition around the region because of a strong Ringgit.
If the Ringgit is weak, then it might be good for international trade up to a certain extent. The travel industry in Malaysia will also benefit.
As you can see from the chart above, Malaysia's revenue from Tourism is not small. In fact it is huge!
Whether the Ringgit is strong or weak, there will always be some sector that will benefit. But overall, a stronger Ringgit is usually good for the Malaysian stock market.
The chart above is the monthly chart of the US Dollar Index.
This chart tells us that it is not the Malaysian Ringgit that is strong but it is actually the USD that is weak. Which in turns makes the USD/MYR to be weak. The story is the same with many other currencies around the world.
It seems that the Trump administration prefers a weaker dollar. When asked about it, Trump says he wants a strong dollar but in reality he knows that a weaker dollar will make US companies more competitive. Even recently, US Treasury Secretary Steve Mnuchin says that a weaker dollar is good for trade.
If you look at the monthly chart of the US Dollar index, you will realize that it is dropping to a long term support area. In the event it breaks the support, there is another layer of support around 83.
Therefore, it is very possible for the US Dollar to stop dropping when it reaches these important areas. That is also another reason why I think oil could go to $80 but perhaps find resistance there because of the support areas in the US Dollar Index.
You can read about my views on oil in this article Technical Analysis Of Oil Prices : Where Will Oil Go?
The last chart I want to show you in today's analysis is the daily chart of the USD/MYR.
What a nice downtrend the pair is in.
I'm always a big believer in trend following. Technical analysis is quite useless if you do not follow the trend. Since the trend of the USD/MYR is down, we should continue to be bearish on it till the trend changes.
There were many bearish continuation patterns in this pair. There was a break uptrend line and then there was a bearish consolidation at 20 MA.
Since the USD/MYR is at a long term support, if you want to see it go lower, it is best to have it consolidate and then break down again. That way, it will help to absorb the demand at the support area.
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