USD/SGD gapped higher uncharacteristically this morning, and moved higher during early Japan/Sydney trade. Some of the strength can be attributed to USD strengthening from safe haven flows post Obama’s sequester cuts ratification, but the show of strength wasn’t immediately recognizable via majors such as EUR/USD and GBP/USD. Even “risk” sensitive USD/JPY failed to register similar reaction. It is apparent that there is something else that prompted the selling of SGD early on, but what?
There are reports of funds and institutions buying USD/SGD on leverage which pushed prices higher, however there is nothing on the news wire that could have affected USD/SGD to such a degree. The reasons these institutions are buying USD/SGD could be due to them knowing something that we do not know (unlikely since FX market info is highly liquid), or they are looking at the technicals of USD/SGD which has managed to close above 1.24 last Friday, almost ending on the weekly high.
Price has failed to break 1.24 many times before, as such it can be considered a bullish achievement that the bulls managed to close above the 1.24 level to end the week on a bullish note. Though rarely do we see technical price moving without fundamental drivers, Today is a good example in which we should never rule out any scenario in trading, no matter how remote it may be. However, what goes up, must come down (or at least pullback a little eventually), and we are looking at some weakness of bulls below 1.248. Stochastic is also showing signs of topping with Stoch/Signal line crossing lower, though we are still at the early stages of a bearish signal forming.
Daily Chart is actually very bullish with price breaking not only the 1.24 resistance, but trading above the 1.245 swing top back in Feb 13th. A break above the 1.245 level opens up the consolidation zone 1.245-1.255 that was in play back in Aug 2012. More importantly, the move potentially negates the downtrend from 1.297 back in Jun 2012 should price manage to break above 1.255, as it will break the lower lows, lower highs sequence, bringing us back into bullish bias, or at least sideways trend. Unlike the hourly chart, Stochastic still have some more room to play, making a move back up to 1.255 possible before readings peak, but hence making the likelihood of breaking 1.255 lower.
Fundamentally, USD/SGD is still going to be more influenced by USD broad direction than SGD inherent movements. As such, long-term outlook will still hinge heavily on how US economy and the market at large reacts to the sequester cuts that has been signed by Obama last week. It is important to note that not all the cuts happened together on 1st of March, with many cuts still due to come in the following months. This may be a good thing as it affords time for Obama and his Democrats to negotiate with the Republicans. However, the flip side of it would also be that market may be anticipating such “grand bargains” taking place and have priced them in already (which would also explain why the selling off of equities is more pronounced). Further failures of any resolution in kind may result in further erosion of market confidence, driving USD higher and pushing USD/SGD above 1.255.
Also, it will be foolish to ignore the MAS even though they are expected to simply keep SGD as it is. MAS has never disclosed its internal band for SGD, and even if they have a band to defend, it is highly unlikely that market actions of buying/selling USD/SGD through agent banks can dent the huge influx/outflow of global funds affected by risk behaviors. Nonetheless, any form of guidance from MAS may influence sentiments of the same institutions which has pushed USD/SGD to fresh 2013 highs today.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.