According to National Australia Bank Ltd, Asian currencies will lose half their gains made since the easing of the 2008 global financial crisis as Europe’s debt woes cause a “double-dip” in global stock markets. Investors will sell riskier assets as the European Union seeks a solution to its debt woes and tensions mount on the Korean peninsula but with China denied rumors of reviewing European debt holdings and the State Administration of Foreign Exchange reaffirmed eurozone as "one of the most important investment markets" and consequently risk sentiments staged a strong recovery by the end of the week. DOW managed to extend the rebound from intraday low of 9774 and close above 10,000 level at 10136. Major currencies were generally higher against dollar and yen, in particular commodity currencies. However, Euro failed to benefit from the recovery in risk appetite and has indeed closed lower against other major currencies.
The ringgit movement against the dollar has been in-sync with the local stock market as measure by FBM KLCI.
The two charts below showed the month of May for USD/MYR at the top and FBM KLCI at the bottom. Although the ringgit has not moved as drastic as the local bourse but both moved in the same direction.
Looking at DJIA and EWM (the two charts below), it provided us more clear picture the relationship between New York bourse, the local bourse and the ringgit and EWM demonstrated more sensitivity to the ringgit.
As for the EUR/USD, it is more reflected by the US Dollar Index with the ringgit following tentatively the US Dollar Index. (refer to EUR/USD and US Dollar Index below).
The US Dollar for the entire week was defined by high volatility otherwise bound by congestion - even though most benchmarks (like EURUSD and the Dow Jones Industrial Average) remain on the verge of establishing the next leg of a major bear trend.
US and UK markets (meaning banks and exchanges) will be offline this coming Monday. On tap for the risk-sensitive market that was unseen before, announcement near the close of the London trading session, Fitch Ratings unexpectedly downgraded Spain’s sovereign debt rating one step from a top AAA to AA+. Given the level of debt, unemployment and austerity cuts Spanish economy faces, such a move is not a complete surprise. However, as we have seen time and again; when sentiment is already weakened, discouraging developments like these simply feed the fire.
The development in stocks, i.e the DOW another attempt to break through 10,000 level last week and even breached Feb's low of 9835 briefly and buying quickly emerged that sent stocks higher towards the end of the week. However, the recoveries looked corrective. Also, Friday's selloff argues that recoveries might be over. Traders could be cautious on renewed pressure on stocks on Monday and on Tuesday when US and UK market returns. There is a number of important US economic data for next week:
1. American Unemployment Claims: Published on Thursday at 12:30 GMT. This weekly barometer is usually a better indicator. During most of this month’s weeks, it stood around 440K, signalling a positive NFP. Unemployment claims stood on 460K last week. A drop below 430K will raise expectations, while a rise above 480K will be very disappointing.
2. Non-Farm Payrolls: Published on Friday at 12:30 GMT. The most important indicator in forex trading was superb last month – it showed that the American job market gained 290K jobs, far better than 198K that was predicted. Also the previous month’s number was upgraded to 230K. On the other hand, the unemployment rate jumped from 9.7% to 9.9%, avoiding double digits, but still causing worries. The government’s decennial census will have a strong impact this time – a gain of 465,000 jobs is expected. On the other hand, the unemployment rate will probably only edge down to 9.8%. This release always creates choppy trading that begins many hours before the release and lasts until the closing bell.
