Weekend development on Cyprus spurred flight to safety not just for equities but currencies as well. USD strengthened tremendously, beating all currencies other than JPY, which is a stronger “safe haven”, pushing USD/SGD (exotic/risk currency) above 1.25 once again.
The opening gap sent triggered Ichimoku to exhibit a bullish Twist as price simply teleported above the Kumo without even testing it remotely. Last Friday price was heading into opposite direction away from the Kumo and the forward kumo then suggest that a retest of the 1.247 swing low was possible, and perhaps a possible break bringing price back to the 1.246 consolidation area on 13th Mar. Without the Cyprus kerfuffle, it is hard to imagine price being able to break the thickening descending Kumo much less piercing it to the upside. Price is currently consolidating within a ~10 pip range around 1.251 – 1.252 which affirms the thought that things might have simply stayed flat if not for the once off Cyprus issue. Stochastic readings are trending lower, suggesting that price may undertake a bearish cycle now, though support in the form of the Senkou Span B (Kumo top) confluence with round number 1.25 should keep bears away.
As the jump in USD/SGD is purely based on Cyprus issues, it makes logical sense to think that price will collapse back below 1.25 towards 1.248 should they manage to resolve the bank levy issue. At the time of writing, Cyprus Parliament is looking to submit a new proposal that may bring down the agreed levy with Euro-group from 6.75% to 3.00% for deposits up to 100K, but at the same time increasing the levy to 10% for 100-500K and 15% beyond. This may help to soothe the pain for small depositors, but it does not address the core fear of the markets: precedence for countries to start financing their own bailout. Previous bailouts have been focused primarily with austerity measures (which wasn’t even tightly adhered to, just ask Greece), and this marks the first time that the Euro-group is asking for the recipient country to fork out money for their own bailout, something that could be easily extended to Spain and Italy the next time they request for assistance. This fear is not going to dissipate unless someone from Euro-group comes out and clarify that this is a once off occurrence, and that will certainly take days if not weeks (if ever) for such guidance to be given. To summarize, the fear may linger for a while yet, and that means USD/SGD will continue to stay afloat for the time being.
Daily Chart agrees with such an outlook, as price has been trending higher since the initial rally in Jan. Price stalled below the 161.8% extension, but is looking higher seeking the 261.8% extension now. Stochastic indicator is Overbought, but may not represent a true bearish cycle but may point to yet another period of consolidation below the 261.8% Fib similar to what we’ve seen back in Feb. Bullish momentum may accelerate if price manage to clear the recent swing high back on 15th March which will almost certainly result in price clearing the rising flag channel.
Singapore dollar may also experience further weakness as there were rumors late last week that the Monetary Authority of Singapore may alter the SGD band weaker. Though the rumors were unverified ultimately, it signals the underlying tone of traders hoping to see some MAS action in their upcoming April meeting. However, traders should be well aware that the larger the anticipation, the larger the disappointment if MAS’s intervention fall through. This may result in USD/SGD heading lower but bullish bias may still remain if price maintains above 1.245.
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.