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.
