SGD strengthened to 1 month high against USD as ISM Manufacturing data pushed USD weaker during US trading hours. However, the ISM disappointment may be a red herring as 1.24 remained robust, keeping bears of USD/SGD at bay during US trading hours. Price only started to breach below 1.24 following Asian open, more specifically Japan opening hours. The decline coincide with USD/JPY’s decline due to market’s lack of faith in BOJ – not necessary an indication of “risk-off”. The decline drove USD weaker and propelled USD/SGD lower significantly. This phenomenal is observable in major USD pairs, while for USD/SGD with much thinner liquidity, the spillover has a larger impact as seen from Chart below.
Price didn’t look back after the break of 1.24, with bulls simply giving up and bearish acceleration increasing. Price is currently finding some support in the form of structural trendline from 27th Mar high. Interestingly enough, Stochastic readings are marginally higher currently as compared to before the breakout. This doesn’t tell us much, other than pointing out that current bullish signals may not be reliable, something that is common knowledge when it comes to oscillators and strong trends.
Speaking of strong trends, the recent break of 1.24 serve to open up the 1.235 – 1.24 consolidation back in Feb. More importantly, it is a confirmation/continuation of the breakout signal highlighted by the Evening Star candlestick pattern formed last week. Stochastic readings are still pointing lower, but the Stoch/Signal lines appear to be converging, adding strength to the 1.235 support. Furthermore, the last time readings hit such levels was back in Dec ’12, when USD/SGD was around 1.22. With uptrend still not yet broken, further acceleration of bears may only appear should 1.235 be broken, invalidating current uptrend bias and opening up further downside objectives.
With MAS semi-annual meeting coming in late April, it is possible that traders may tread lightly before any guidance from MAS can be sought. With that in mind, the scenario of 1.235 supporting increases in likelihood as traders may not wish to over commit in USD/SGD shorts only to have MAS spoiling the party with easing actions just 1-2 weeks later. On the flip side of the coin, this could also mean that bearish acceleration may increase once the looming MAS meeting gets out of the way, and if price manage to stay around 1.235 when that happens, bears may wish to look for confirmations for a reversal of current bull-trend.
BOJ could yet play a part as well. Noting the spillover from USD/JPY, if further deterioration of confidence in BOJ persists, the bout of USD weakness may drive price lower below 1.235, rendering above scenario invalid. This will always be the risk of trading currencies with low liquidity, and traders will do well to note global trends as that may almost always trump local demand and supply factors.
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