Sunday, December 4, 2016

How low can the Ringgit go

USD/MYR

As I have shown in my previous article, I have yet to find an Asian currency that has strengthened against the US$ after Donald Trump has won the US presidential election. And so far Malaysian Ringgit is the currency that has dropped the most against the US$.

The question now is how low will it go in the near term. By just looking at the USD/MYR long-term chart (1983 - 2016 Dec 2) as shown below,


If I assumed that the January 1998 Rm 4.882 to 1 US$ is the peak, I noticed that from this peak to its low of Rm 2.932 to 1 US$, i.e from January 1998 to July 2011 (13 years), there are 5 down waves, wave (i) to wave (v), this has to be wave A. From there until last Friday closing of Rm 4.484 to 1 US$, there are 7 up waves, wave (i) to wave (vii), I considered this as a potential wave B. The main question now is whether wave (vii) has ended to form a small double-top reversal pattern, or it is going for January 1998 intra-day high of Rm 4.882 to 1 US$ to form a big double-top reversal pattern. Or it will end somewhere between Rm 4.484 and Rm 4.882 ? Only time will tell.

If my reading is right, you can say this is a bullish reading because the wave C is going to bring the Ringgit back to July 2011 low of Rm 2.932 to 1 US$ or even back to July 1995 low of Rm 2.432 to 1 US$ for a 100% retracement.

Looking at what is happening in Malaysia (red shirt, yellow shirt, politic, economy, government, crime rate, corruption, education system, government system, 1MDB ......... etc. etc. Nobody will believe that this can happen to the Ringgit 10 years down the road. But this is what the chart tells, unless my assumption of January 1998 Rm 4.882 to 1 US$ as the peak is wrong.

Malaysian Stock Market

First, let us look at the Dow because I always believe that world bourses including Bursa Malaysia will ultimately move in tandem with the US market.


Dow is not yet due for a collapsed. At worst, Dow has completed its major wave (7) if major wave (7) has only 5 waves. It may continue to form 9 waves. Dow still has major wave (8) and (9) in front. No worry.

What about crude oil price.


Good news for KLCI, wave (iv) in progress, heading for US$ 80 a barrel. My target is US$ 70 a barrel.

But is KLCI going to move in tandem with the Dow ?


From 1986 to 2016, KLCI, in general, has been following very closely moving up and down with the Dow except during 1997/1998 Asian currency crisis. KLCI dropped 68% from Oct 1997 to Sept 1998. Whereas during the same period Dow moved higher in 1997, gained 15%  but subsequently it dropped 16%, net drop is only about 1% compared to KLCI 68%.

In 2016, KLCI has a side way movement whereas Dow kept on setting new record highs, moving from 16,516 to last Friday's 19,170, gaining 16%.

But if my wave B's reading for USD/MYR is right and crude oil is forming its wave (iv), my reading for KLCI is as shown below.


There is a major wave 5 in front but I have to wait for the completion of major wave 4.



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