Visually, the inverse relationship between FBM KLCI( left) and USD/MYR(right) above is clearly noticeable.
Monday, the stock market showed a bullish candle and correspondingly the USD/MYR pair slipped lower. The stock market experienced a correction with lower close and a hanging man candle on Tuesday and consequently the currency pair registered a large bullish candle. The correction continued to Wednesday as the stock market open and close below previous day’s close with a small bearish candle, USD/MYR formed a bearish candle at the top of the previous day range and the high is greater than previous day high.
The two days correction of stock market ended on Thursday with a the market went overly bullish with a large gap from previous day’s candle and consequently USD/MYR went downward penetrating Monday’s low.
Friday, with the overall market sentiment going indecisive waiting for US non-Farm Payroll data, the pair closed near previous day’s close and fashioned a doji candle.
As any other currencies, MYR is also affected by risk sentiment.
EUR/JPY is traders’ favorite currency risk barometer, a dipl in the EUR/JPY pair indicates a risk aversion and an upward move for the pair specifies a market risk acceptance. With USD considered as a safe haven currency, a rise for EUR/JPY pair will have a reverse course action for USD/MYR pair.
Two charts below give a glimpse of the relationship between USD/MYR and EUR/JPY.
A step up in risk aversion(EUR/JPY declining) since early Monday was correspondingly followed by a lift of USD/MYR that end in early Wednesday Asian session but EUR/JPY(risk sentiment) started a reversal on Tuesday London session.
An improving risk appetite ended on Thursday London session but USD/MYR find its bottom support earlier at Thursday Asian session.
On Friday, EUR/JPY took a dive before Tokyo open that carried the pair below Tuesday’s low but USD/MYR was consolidating sideway.
In generally, I am expecting the risk aversion to continue to drive dollar and yen higher this coming week as global stocks would possibly resume recent fall. The USD/MYR is expected to find resistance on the way up at 3.3451 with immediate support at 3.2730.
