USD/SGD traded lower yesterday with price breaking the 1.2525 March high once more after breaking above it earlier this week. The decline was brought about by the weakening of USD due to the rally in US stocks. Price reached 1.248 towards the end of US trading session, with price rebounding higher when Asian session took over. Price took a shallow dive when the Q1 Unemployment Rate was released, but this number shouldn’t come as a real surprise as it is simply the final print for Q1, with the previous earlier initial estimates putting it at 1.9% as well. Hence it is not surprising that USD (which is experiencing a technical rebound after yesterday’s selling) managed to wrestle back directional control from the mild strengthening of SGD, pushing USD/SGD back above 1.25 and now 1.2525.
From a technical perspective, this is an important level for USD/SGD to hold as it relieves the bearish pressure from the decline since May 29th, and affirms Jun’s recovery which started with 1.243 holding last week. If price fails to hold, 1.243 will open up as a potential target in the next 1-2 weeks with 1.23 being a longer-term target. Stochastic readings seem to agree with a bearish outlook with readings pointing lower. However the distance between Stoch/Signal line has decreased somewhat. If 1.2525 holds, it is likely that we may see a Stoch/Signal cross to the upside, which will help entrench bullish pressure for a move back above 1.26. If price manage to close above 1.26 convincingly, Jun’s rally will be enhance for a move back above 1.27 which will be an extension of May’s rally.
Fundamentally, it is unlikely that SGD’s fundamentals will play a major part in USD/SGD’s 2013 direction. Recent surveys show that growth rate in Singapore remains well within MAS comfort level of 1-3%, with consensus staying at 2.3%. This would mean that the Singapore economy will be able to withstand serious punishment – an erosion of 1.3% off GDP growth before MAS start to panic. With that in mind, it is almost impossible to imagine MAS altering SGD trading band in order to facilitate higher growth, even though the 1-3% growth is certainly lower than historical average of 4.9% (since Singapore Independence). Hence USD volatility will be the main driver moving forward. Continue to keep an eye on the direction of US stocks and also the correlation pattern between USD and stocks to gain a better understanding of where USD/SGD can move forward in 2013.