The US dollar strengthened last week, but in Asia the dollar went sideway against the Asian currencies.
USDMYR pair since April 7 , was moving within a high range of 3.2350 and a low range of 3.1790. The pair have tested the 89 EMA but failed and currently it had just penetrated the lower support line of a triangle indicating a move downward.
The indicators also indicated a bearish tone and a break of recent support line at around 3.1800 could push the pair to 3.1500 and then toward 3.1000.
After perusing GBP/USD charts of 1HTF to a lower time frames, I decided to use the 5 MTF seeking the impulse 5 elliot wave. On the 5 MTF as shown above, the 3rd wave end at 5 minutes before Frankfurt open with 4 wave finding resistance at 50% fibo retracement. The 5 SMA has cross the 20 SMA indicating GBP/USD is expected to tag the lower BB moving.
My first entry is for short at vertical line 1 on the 1MTF as shown below with price target at 61.8% fibo extension. At entry all indicators indicate a sell position with 60 EMA acted as a solid resistance level.
The second entry start with a reversal hammer on the 5 MTF with indicators showing a reversal. The exact entry was made at vertical line 2 on the 1MTF. At this line the lag is moving upward crossing the 15 level and MACD line crossing the signal line. There is a positive divergence in RSI. Target was at Assian session high.
MACD-Histogram
In 1986, Thomas Aspray developed the MACD-Histogram. Some of his findings were presented in a series of articles for Technical Analysis of Stocks and Commodities. Aspray noted that MACD's lag would sometimes miss important moves in a security, especially when applied to weekly charts. He first experimented by changing the moving averages and found that shorter moving averages did indeed speed up the signals. However, he was looking for a means to anticipate MACD crossovers. One of the answers he came up with was the MACD-Histogram.
The MACD histogram is an elegant visual representation of the difference between MACD and its nine-day EMA. The plot of this difference is presented as a histogram, making centerline crossovers and divergences easily identifiable. A centerline crossover for the MACD-Histogram is the same as a moving average crossover for MACD. If you will recall, a moving average crossover occurs when MACD moves above or below the trigger line. The histogram is positive when MACD is above its nine-day EMA and negative when MACD is below its nine-day EMA. If prices are rising, the histogram grows larger as the speed of the price movement accelerates, and contracts as price movement decelerate. The same principle works in reverse as prices are falling.
See Chart 1 for a good example of a MACD histogram; the green, black and red bars in action.
A green bar is positive MACD with increasing height and a red bar is a negative MACD with decreasing distance from zero level.
A positive MACD black bar has a decreasing height and a negative MACD black bar is shown by increasing distant from zero level.
Sharp increases in the green bar indicate that MACD is rising faster than its trigger line and bullish momentum is strengthening. Sharp declines in the positive MACD bar indicate that MACD is falling faster than its trigger line and bearish momentum is increasing.
The MACD histogram is the main reason why so many traders rely on this indicator to measure momentum, because it responds to the speed of price movement. Indeed, most traders use the MACD indicator more frequently to gauge the strength of the price move than to determine the direction of a trend.
Usage
Thomas Aspray designed the MACD-Histogram as a tool to anticipate a MACD crossover. Divergences between MACD and the MACD-Histogram are the main tool used to anticipate MACD and moving average crossovers. A Positive Divergence in the MACD-Histogram indicates that the MACD is strengthening and could be on the verge of a Bullish Moving Average Crossover. A Negative Divergence in the MACD-Histogram indicates that the MACD is weakening, and it foreshadows a Bearish Moving Average Crossover in the MACD.
In his book, Technical Analysis of the Financial Markets, John Murphy asserts that the best use for the MACD-Histogram is in identifying periods when the gap between the MACD and its 9-day EMA is either widening or shrinking. Broadly speaking, a widening gap indicates strengthening momentum and a shrinking gap indicates weakening momentum. Usually a change in the MACD-Histogram will precede any changes in the MACD.
Signals
The main signal generated by the MACD-Histogram is a divergence followed by a moving average crossover. A bullish signal is generated when a Positive Divergence forms and there is a Bullish Centerline Crossover. A bearish signal is generated when there is a Negative Divergence and a Bearish Centerline Crossover. Keep in mind that a centerline crossover for the MACD-Histogram represents a moving average crossover for the MACD.
Divergences can take many forms and varying degrees. Generally speaking, two types of divergences have been identified: the slant divergence and the peak-trough divergence.
Slant Divergence
A Slant Divergence forms when there is a continuous and relatively smooth move in one direction (up or down) to form the divergence. Slant Divergences generally cover a shorter time frame than divergences formed with two peaks or two troughs.
A Slant Divergence can contain some small bumps (peaks or troughs) along the way. The world of technical analysis is not perfect and there are exceptions to most rules and hybrids for many signals.
Peak-Trough Divergence
A peak-trough divergence occurs when at least two peaks or two troughs develop in one direction to form the divergence. A series of two or more rising troughs (higher lows) can form a Positive Divergence and a series of two or more declining peaks (lower highs) can form a Negative Divergence. Peak-trough Divergences usually cover a longer time frame than slant divergences. On a daily chart, a peak-trough divergence can cover a time frame as short as two weeks or as long as several months.
Usually, the longer and sharper the divergence is, the better any ensuing signal will be. Short and shallow divergences can lead to false signals and whipsaws. In addition, it would appear that Peak-trough Divergences are a bit more reliable than Slant Divergences. Peak-trough Divergences tend to be sharper and cover a longer time frame than Slant Divergences.
MACD-Histogram Benefits
The main benefit of the MACD-Histogram is its ability to anticipate MACD signals. Divergences usually appear in the MACD-Histogram before MACD moving average crossovers do. Armed with this knowledge, traders and investors can better prepare for potential trend changes.
The MACD-Histogram can be applied to daily, weekly or monthly charts. Using weekly charts, the broad underlying trend of a security can be determined. Once the broad trend has been determined, daily charts can be used to time entry and exit strategies. In Technical Analysis of the Financial Markets, John Murphy advocates this type of two-tiered approach to investing in order to avoid making trades against the major trend.
The weekly MACD-Histogram can be used to generate a long-term signal in order to establish the tradable trend. Then only short-term signals that agree with the major trend would be considered.
After the trend has been established, MACD-Histogram divergences can be used to signal impending reversals. If the longterm trend was bullish, negative divergences with bearish centerline crossovers would signal a possible reversal. If the long-term trend was bearish, traders would watch for a positive divergence with bullish centerline crossovers.
MACD-Histogram Drawbacks
The MACD-Histogram is an indicator of an indicator or a derivative of a derivative. The MACD is the first derivative of the price action of a security, and the MACD-Histogram is the second derivative of the price action of a security. As the second derivative, the MACD-Histogram is further removed from the actual price action of the underlying security. The further removed an indicator is from the underlying price action, the greater the chances of false signals. Keep in mind that this is an indicator of an indicator. The MACD-Histogram should not be compared directly with the price action of the underlying security.
Because MACD-Histogram was designed to anticipate MACD signals, there is a temptation to jump the gun. The MACDHistogram should be used in conjunction with other aspects of technical analysis. This will help to alleviate the temptation for early entry. Another means to guard against early entry is to combine weekly signals with daily signals. Of course, there will be more daily signals than weekly signals. However, by using only the daily signals that agree with the weekly signals, there will be fewer daily signals to act on. By acting only on those daily signals that are in agreement with the weekly signals, you are also assured of trading with the longer trend and not against it. Be careful of small and shallow divergences. While these may sometimes lead to good signals, they are also more apt to create false signals. One method to avoid small divergences is to look for larger divergences with two or more readily identifiable peaks or troughs. Compare the peaks and troughs from past action to determine significance. Only peaks and troughs that appear to be significant should warrant attention.
The ringgit as one of the more popular proxy plays on the yuan went sideway last week despite an upward growth forecast of Malaysian economy.
Singapore unexpectedly revalued its currency, triggering the biggest gain in 10 months on Wenesday, after the government raised forecasts for economic growth and inflation. It was reported that the Monetary Authority of Singapore (MAS) will “re-center the exchange-rate policy band at the prevailing level of the Singapore nominal effective exchange rate” and “shift the policy band from that of zero appreciation to one of modest and gradual appreciation,”. The hawkish stand of MAS and the rise in Singapore dollar opens up the rest of Asia to allow further appreciation of their currencies, with the Korean won follow through but has only a slight impact on the ringgit.
The local stock market is inversely correlated with USDMYR or in other word, the ringgit appreciation is positively correlated with the FBM-KLCI. For the past seven days, the FBM-KLCI has consolidated sideway with USDMYR sideway move covered the whole days of last week (Refer to the charts below).
Given that I see USDMYR has completed the 5 elliot waves, an a-b-c corrective wave is on its way. With yuan not expecting any revaluation, the USDMYR correction is expected to find resistance first at 23.6% fibo retracement and further upward at 38.2% retracement. Refer to the chart below.
My wave count of GBP/USD for Friday 16th April is as chart 15 MTF above. About 25 minutes before Frankfurt open, the corrective 4th wave was completed with shooting stars were formed on the 15 minute and 5 minute charts. The top of the 4th wave was slightly below the daily pivot and the 200 bar EMA on 5 MTF chart. (refer to the 5 MTF chart below).
I took my sell position at that time with target at S1 level.
At 8 minutes after London open, the indicators at 5 and 1 MTFs showed a buy signal with profit target first at 89 bar EMA of 5MTF and the second target at 200 bar EMA of 5 MTF.
The emergency announcement of a 30M euro mechanism to bail Greece out sent EUR/USD pair gaped higher in early Asian Morning. Other pairs such as GBP/USD made significant leaps as well.
The cable opened with a gap with a formation of a wave (iii) of a minor elliot wave.(refer to the 30 MTF chart above). The gap confirmed the break of the stubborn hurdle of 1.5350 and peaked at 1.5484. The peak is about 1.27% fibo extension of the last swing and the completion of the 5 wave of the minor elliot wave.
GBP/USD is expecting to move downward forming the a-b-c corrective wave during the European/London session.
By the end the week, cable stalled at major resistance level of 1.5370. Most Elliot Wave technicians saw it at that level it is possible the cable are finishing off a wave 4 or alternatively if prices pushes higher, it would suggest a larger correction and that wave 5 would of been a truncation, and 5 waves completed.
Looking at price pattern, cable is likely to form a double bottom with the neckline at around 1.5370. Next week we could see any clear direction i.e. either moving upward passed 1.5370 or fall below it and reversed direction downward.
On the 30 MTF, the cable is expected to consolidate downward as prices is heavily overbought.
I was expecting the ringgit to consolidate last week but the ringgit has been gaining momentum and hitting the strong levels seen in 2008 during early of the week.
Dealers said apart from riding market expectations of gains for the yuan, the ringgit was boosted by market talk that China was considering promoting the ringgit as a currency for direct Sino-Malaysian trade. China was also reported of planning to allow its currency yuan to trade against the Russian ruble and South Korean won to promote its use in cross-border trade. Currently, yuan can be traded with the dollar, the euro, the yen, the Hong Kong dollar and the British pound.
Will the ringgit hit the 3.1280 level reached in 2008 ?
On the 4 HTF chart, The USDMYR has breached the support lower channel line with indicators showing an oversold position.
By the last day of the week, USDMYR has moved below the support level at 3.1910. With the yuan had a major influence on the ringgit and it seem that the Chinese has soften their stance for yuan appreciation, the USDMYR could drifted lower next week unless there is some economic factors that could boost up the USD.
Last week, USDMYR was tagging along the lower support line of downward sloping channel as it inch slowly downward. The recent ringgit strength could be attributed to the flow of hot money into Malaysian market taking advantage of the dollar-carry and yen-carry trades.
The USDMYR is now at grossly oversold position with both lags flat at the bottom and MACD below zero level for the whole week.
Expecting a reaction upward this coming week with a resistance level at 3.2900 and the next resistance at 3.3000.
A break of current low is expected not to push the pair much lower.
GBPUSD which has been on the uptrend for the past five days come to an end on Friday as US economy showed improvement in jobs data and the London/European market was close for Bank Holiday. The U.S. economy added 162,000 jobs in March, missing expectations for a gain of 184,000 and leaving the unemployment rate at 9.7% for a third straight month.
The cable was reined-in by the resistance of the top of downward sloping channel A1A2-B1B2. and 1.5300 level. At that level there is a divergence between the MACD and the MACD Histogram.
By the end of the week, the cable has fallen to its 20 EMA. The coming week, the cable will be testing the 23.6% retracement before falling to its next support at 38.2% retracement at 1.5105.
