After staying above 1.25 and even 1.2525 for most part of yesterday, price traded higher during early Asian session, attempting a small scale bullish breakout from the 1.254 soft ceiling towards the previous floor of 1.257-1.258. That did not materialize, with a Shooting Star bearish reversal pattern forming with the “star” closing level below the descending Channel Top. Price quickly traded lower, breaking 1.2525 on the next hour after the formation of the bearish reversal pattern. There was still a ray of hope initially for the bulls, with price pulling back up to around 1.25 towards the end of the trading period, but the next candle snuffed out any hope of a 1.25 rebound, pushing price deeper instead. Currently price is sitting just under 1.25 once again, and we could be seeing yet another bearish acceleration if the aforementioned level holds.
The sudden slump in prices can be partly attributed to the slump in USD/JPY, which pulled USD lower. This weakening in USD spilled over to USD/SGD which tend to be more affected compared to other major pairs such as EUR/USD or AUD/USD, as the liquidity in USD/SGD is much thinner and more directionally dependent on USD.
From a technical perspective, there is a slight divergence between recent price lows which is getting lower, vs Stoch troughs, which are marginally higher. This suggest that current bull cycle suggested by the Stochastic indicator should be taken with a pinch of salt and may not necessary translate to a break of 1.25 nor bullish movement towards the Channel Top. Overall pressure remains down, and a move towards the channel bottom is possible especially with a new low carved out in the recent move.
Daily Chart shows the same bearish pressure with price clearing March’s highs. This opens up 1.243 which is the top of the 2 shoulders in the Head and Shoulders pattern which was invalidated back in May. Price still have a distance to go to give up their entirety of gains made in May. Stochastic readings are around 2013 lows, but in terms of recent historical low, Stoch line may still have some room to head lower, which means a move down to 1.243 is still plausible without overstretching too much, but beyond 1.243 may be a little bit harder.
Moving forward, stocks are starting to look weaker. It seems that the seasonality “sell in May and go away” is one month late. However in a recent twist, USD is not inversely correlated to stocks, unlike what was seen back in May. With this in mind, USD/SGD may pull back up once more if USD continue to strengthen based on this relationship. However, USD/JPY spillover effect will definitely still affect USD/SGD, and things aren’t looking so hot for USD/JPY right now. The 100.0 strong support is now broken, and support for Abe/BOJ is clearly waning, with USD/JPY and Nikkei 225 tanking after Abe spoke today. Also, on USD/SGD’s own front, there lies the possibility of commercials shorting USD/SGD around current levels, as what they have done previously which drove price down back in March.