A US-China trade deal is a game-changer for the MYR. A deal between the US and China should see a stronger MYR against the USD in 2020. We are looking at the MYR to trade between 4.05 and 4.10 against the USD with the yuan strengthening between the 6.93 and 6.95 levels supported mainly by the striking of the trade deal between the US and China. On the flip side, it could place the MYR around 4.17–4.21 against the USD with yuan at 7.03–7.07 levels against the USD.

The euro could see stronger values in 2020. On the euro-dollar outlook, focusing more on the euro fundamentals, and at the same time taking note of the dollar itself, the currency should be trading at 1.16 with room to reach 1.18 by the end of 2020. In the event that the drag on the euro remains strong with no clear settings on the trade deal between the US and China, Europe’s single currency is more likely to stay around the 1.08– 1.10 levels by end 2020.

A. The development so far…

• Investors have been focusing on the yuan’s 7.00 level against the USD over the past few months as it is the psychological level where the PBoC will intervene.

• At the height of the trade war, the yuan surpassed the psychological level, weakening to reach 7.1876 against the USD. During this period, the MYR touched 4.2280 against the USD.

• More recently, the yuan strengthened to return to the 7.00 psychological level and closed below the 7.00 handle following signs of reassurance that risk is firmly on and the “phase 1" trade deal is restoring calm to financial markets. In tandem with this, the MYR has gained to close at 4.13. But this was short-lived and yuan has again surpassed the 7.00 psychological level to around 7.03 now. The MYR moved in tandem to 4.17.

• Meanwhile, Europe’s single currency (euro) has been struggling to find the upside momentum in 2019 against the dollar. The euro-dollar exchange rate fell to a multi-year low of 1.0825 on 31 October, but has since been ticking higher at 1.10.

• The euro region’s growth has been anaemic due to a slowdown in Germany which risks falling into a recession. Issues like trade tensions, Brexit uncertainty and a slowdown in Chinese economic activity took a heavy toll on Germany’s export-driven and manufacturing-heavy economy.

• However, 3Q2019 data readings suggest that the region’s economy may have found its bottom. A turnaround seems to be emerging. Some of the leading indicators indicate that the German economy is close to the worst point. It could begin to pick up gradually in 2020. Still, it is not sufficient to encourage a stronger euro at this point.

Source: AmInvest Research - 27 Nov 2019