Singapore inflation for May grew 0.1% from April’s 1.5%, despite a decline in private road transports. Housing prices and rentals grew 5.1%, more than double that of April’s 2.4% which offset the decline in car prices. Core inflation, which excludes housing and private vehicle costs, rose 1.7% vs April’s 1.4%, due to higher increase in services costs and food prices. Despite the higher than expected inflation, current inflation rates are still within MAS’s comfortable range, and as such it is unlikely that MAS will embark on a shift it monetary policy in 2013 even as the October scheduled policy meeting draws near.
Looking at USD/SGD right now, price has come a long way from the 1.23 May lows to current 1.28. From a technical perspective, there is the possibility of a strong rally from this 1.27 breakout – Price did try to test 1.27 the following day after the initial bullish extension, but was rebuffed without testing 1.27 in any meaningful manner. This underlines the strong bullish sentiment surrounding USD/SGD right now. Furthermore, price has managed to clear the rising trendline that was supporting “phase 2” of the rally from early to end May (1.23 – to the first 1.27 attempt), suggesting that we may be once again in the same gear of bullish momentum between Mid – End May 2013. Should 1.28 round figure be broken, the bullish case will be furthered and we could potentially see price heading towards 1.29 – 1.31 resistant zone – where price may find stronger resistance and possibly retrace back (either as a bearish correction or a longer-term reversal, depending on price action), similar to the move from 1.255 – 1.27 which the rising trendline was supporting during its inception.
One word of caution though, stochastic indicator is highly Overbought right now, and Signal and Stoch line are looking likely to cross and head lower soon. With today’s candle far from ending, the possibility of price heading lower back below the rising trendline exists, and if that ultimately leads to a break of 1.27 and coincide with a bearish Stoch signal (Stoch line below 80.0), the previous assertion for bullish outlook will be impaired, but not necessarily invalidated unless 1.25 is broken.
A large part of 2013 rally can be attributed to the resurgence of USD. Given recent Fed’s announcement of QE tapering timeline, we need to ascertain whether USD will be able to continue rallying or perhaps we’ve simply experienced a one-time revaluation of USD. Hence it is all the more imperative that traders practice caution and watch out for confirmation for both 1.28 breakout or a hold of rising trendline before assuming that current directionality for USD/SGD is a done deal.