The Malaysian Ringgit (RM) finally broke its winning streak against the USD on March 13. Is this the beginning of a short-term rebound (or, corrective rally) in the USD-RM? I think this is quite likely. From Chart 1 below, we can see that the USD-RM has been in a downtrend since March last year. This downtrend consists of 3 intermediate downtrends [denoted as A, C & E] and 2 short-term rebound [denoted as B & D]. While intermediate downtrends A & C lasted about 3 months, the current intermediate downtrends E has only clocked in 2 months. However, one can see that the distance traveled by intermediate downtrends E matches that of intermediate downtrends A & C.


Chart 1: USD-RM's daily chart as at April 15, 2010 (Source: Yahoo Finance)

We can also see that a short-term rebound in USD-RM had coincided with a correction in the stock market. From Chart 2, we can see the 2 periods when this happened- in June 2009 & January-February this year.


Chart 2: USD-RM & FBM-KLCI's daily chart as at April 15, 2010(Source: Yahoo Finance & Tradesignum)

Based on the above, we need to be more careful in order to avoid a possible market correction which may be indirectly brought on by a weakening of the RM.