KLCI may benefit from the strengthening of RM vis-a-vis USD

The anticipated recovery in the US dollar looks unlikely with each passing day. Renewed fear of risk aversion over the past 2-3 weeks did not give any boost to the US dollar. This is mainly due to the concern about rising US fiscal deficit & deteriorating financial position as well as loud haggling by foreign central banks (Chinese central bank, in particular) who are holding onto too much US Treasury bonds.

From Chart 1, we can see that USD index has stalled at the 80 point level for the past 1 month. Its immediate resistance will come from the downward sloping 50-day SMA at 81.4 as well as the upper boundary of the downward channel at 82.5-83.0.


Chart 1: USD's daily chart as at 6/7/2009 (Source: Stockcharts)

The rising concern for the value of US dollar has boosted the value of the ringgit (RM). From Chart 2 below, we can see that the uptrend of the USD-RM cross rate has peaked & a potential Head-&-Shoulder reversal is nearly at hand. The neckline of this H-&-S formation is at the 3.47-48 level.


Chart 2: USD index's daily chart as at 6/7/2009 (Source: Yahoo Finance)

In the past, we have noted the inverse correlation between the KLCI and the movement of USD-RM cross rate (see Chart 3 below). This means that the KLCI could benefit from further weakening of the US dollar.


Chart 3: KLCI & USD-RM cross rate's daily chart as at 6/7/2009 (Source: Quickcharts/Yahoo Finance)