May is a good month of USD/SGD. Price has rallied from a low of 1.2267 to above 1.26 within 2 weeks, a remarkable advance considering that USD/SGD daily movement average is less than 50 pips. The recent rally can be attributed largely to the new USD strength brought on by the jump in US stocks. The Singapore Central Bank MAS have been steadfast in their hawkish stance for SGD, using the strong SGD to hedge away inflation risks which is ravaging the country. This is clearly visible via the YTD 1.15% gain of SGD against a basket of 23 global currencies, which underlines further the remarkable strength in USD that allowed the Greenback to gain close to 5% against SGD YTD.
Previously in March, USD/SGD tried to push above 1.25 but ultimately failed due to large corporations spotted hedging their SGD exposures around the levels. However this time round these large corporations are scarcely seen, which allowed bulls free reign towards 1.26. From a technical basis, price was recently rebuffed from further advancement by the rising trendline that was in play before March’s sell-off. However, bulls have since retested the trendline and is now breaking it, trading above 1.26 in the process. Stochastic readings have also averted a potential bearish cycle signal and is forming an interim trough within the Overbought region.
Despite such bullish impetus, traders must be aware that running on pure USD strength alone may be risky for a currency pair. If USD start to weaken, it is likely that USD/SGD may collapse equally quickly as the inherent strong SGD will pull it down, instead of providing support. This risk currently is slightly more remote considering that Bernanke’s speech in Congress tonight will most likely be a dovish one, which will certainly help to push US stocks higher and hence USD stronger. Traders may wish to look at US stocks for signs of pullback to prevent any USD capitulation surprises.