The US Dollar Index make a critical bearish break early this week. The bearish dollar did not follow the risk appetite track as falling dollar was trail by bullish stock market. Has the dollar broken free of its overbearing (negative) correlation to investor optimism?
Dollar's selloff on Monday was due to speculation that Fed will announce another massive quantitative easing program by the end of the year. According to the decision of the August meeting, Fed will use funds from maturing agency bonds and mortgage-backed securities to buy about $27 bln of Treasuries and TIPS. There will be nine operations from September 15 through October 6. That's already known. What triggers the acceleration in dollar's selloff today is speculation, as started by a report from Goldman Sachs, that there will be a total of $1T in bond purchase to be announced later this year, possibly in increments in a few meetings, starting November or December.
On the local front, the government may reassess a 12-year ban on offshore ringgit trading, as cited on Sept. 11, by a CNBC interview with Prime Minister Najib .
The Ringgit appreciate on Monday(13th) and Tuesday on bearish US dollar and the possibility of the government will relax controls on trading the Ringgit offshore.
By mid- week the US dollar moved sideway and Ringgit registered a correction.
US Dollar index's decisive break of 81.88 indicate a completion of a head and shoulder pattern which suggests that rebound form 80.08 is already finished. In this aspect, we'll be looking at the prospect of deeper medium term decline to 75 level upon breaking of 80.
On the Ringgit, I am looking for the immediate support at previous low of 3.0981 with the next support at 3.089. Resistance is at 3.112.
