Singapore July Industrial Output gained 2.7% Y/Y vs Reuters poll with a 1.2% consensus estimate. However, the rest of the numbers aren’t so rosy beneath the headline figure. Pharmaceutical output declined 4.4%, while ex-biomedical manufacturing gain 3.6% within the same period. The largest gainer by percentage was marine & offshore engineering segment, which grew 19.0% on higher contribution from rig building and ship conversion. One may think that this is good news for the Singapore economy, but marine and offshore engineering can be hardly considered a main economic driver. Furthermore, if we look at a seasonally adjusted M/M basis, headline manufacturing output actually shrank 1.9%. Hence it is not surprising to see SGD not strengthening on the higher than expected headline figure.
Instead, USD/SGD actually pushed up higher following the news release. Traders could be looking at the bearish side of the mixed numbers more favorably, but a likelier explanation seems to be that price is simply bouncing higher from the 1.278 support level. The fact that we are still being kept under 1.28 significant resistance suggest that USD/SGD bulls are not truly convinced that the economic number is truly bearish for SGD, allowing Technicals to continue to reign.
Stochastic readings are currently pushing higher, but we are at/close to the level where peaks and troughs were seen previously, suggesting that readings could easily push lower. Even if prices are able to break 1.28, the Overhead Kumo is likely to keep prices from advancing further. Furthermore, price is also hitting the top of the descending Channel that has been in play since 22nd August, favoring a move back lower.
Stochastic readings also favor a bearish cycle. However, price should ideally break the rising trendline that has been in play since May 2013. Stochastic readings will certainly push lower should such a scenario occur, giving us a stronger bearish cycle indication. However, price would need to break the 1.26 levels in order to impair current bullish rally, and preferably trade below 1.25 to negate bullish pressure entirely.
Fundamentally, even though MAS is not expected to make any changes to SGD, USD/SGD may still be able to rally up further on USD strength. With QE expected to end by 2014, it is conceivable that USD/SGD will continue to rally even if SGD continues to strengthen against its neighbors such as MYR and IDR. Nonetheless, we could still see short-term USD/SGD dip if a September tapering action does not materialize. Given so much variability, traders should continue to wait for strong confirmation and prevent themselves from entering too early.