Price sunk into the Kumo yesterday but was still kept afloat by the 1.235 level. The slight decline in USD/SGD can be attributed to the slight dip in USD following higher than expected Initial Claim numbers together with worse than expected Philly Fed Index. Prices managed to rally higher during early Asian hours but quickly dipped when China market opened. The strong rally in Shanghai stocks reignited risk appetite which drove exotics like SGD stronger. Prices dipped below 1.235 significantly for the first time but closed within the Kumo eventually.
Currently, price is sitting on the 1.235 support/resistance level, and also trading right in the center of current Kumo. This does not tell us much other than the fact that price is current indecisive but we could see potential breakout/bounce soon. On the balance of things, it seems that downside scenario is more likely. In the absence of contrary evidence, we have to accept that current downtrend (from 16th Apr) is still in play. This assumption is supported by the fact that price is not able to break above the 1.237 resistance, and barely punch above 1.236 swing low – the bottom of consolidation before the breakout. Furthermore, looking at Stochastic, readings are heading lower, while Ichimoku hints at a potential bearish Kumo twist happening in the next few periods especially if price is able to trade below 1.235.
Using similar argument as above, we have to assume that uptrend from Dec rally is still intact – just barely. Price has broken below the ascending channel, which has weakened the uptrend bias, and now we are looking at the possibility of a full bearish reversal, negating bullish influence if price can confirm the bearish breakout below 1.235 that was tested 2 days ago.
With US data continue to look weak, we could potentially be able to see further weakness in USD even as Singapore’s own fundamentals deteriorate. Looking at both Central Banks, Singapore’s MAS seems reluctant to ease nor even contemplate weakening the SGD. They have good reasons to do so though, as inflation risks remain highly elevated in SEA. On the other hand, US inflation rates has been lower than expected, and Fed members are starting to worry about deflation once again. This would reduce the likelihood of QE3 halting in 2013 and drive USD lower – allowing for a USD/SGD full reversal towards 1.22 once again.