USD/SGD continue climbing following the bounce of 1.262 yesterday. The rally was halted by the newly formed Channel Top, but instead of trading lower seeking Channel Bottom out, prices continued to linger around 1.268 thereabouts until early Asian hours. The apparent “invisible” support came from the consolidation zone found back on 6th – 8th August above 1.266. This kept price afloat until sudden buying by “fast money” and leveraged funds pushed prices towards 1.27 – a surprising turn considering that People’s Bank of China set a USD/CNY fix 30 pips lower than expected (e.g. stronger CNY), driving Asian Currencies excluding Japan (AXJ) bloc higher.
The issue with such rally is that they tended not to be sustainable as bids were made on a pure speculative basis, against Fundamentals and perhaps against Technicals as well. Hence, it was not surprising to see the rally failing to even hit 1.27, faltering at the first level of resistance in the form of consolidation ceiling around 1.269. There are reports of corporations (real money flow) selling following the confirmation of 1.27 holding. However the resulting decline failed to even hit below the Asian session swing low, showing the underlying bullish sentiment of USD/SGD, and to an extent the support influence of the previously mentioned consolidation range.
From a technical perspective, Stochastic readings are currently pointing lower in the midst of a bearish cycle. As price still has not tagged Channel Bottom, the case for a strong move towards Channel Top which is currently above 1.27 may be less likely, with the more likely option being prices potentially trading flat/edging higher slightly to be dragged higher by Channel Bottom. The ideal scenario will also see Stoch readings continue to move lower, and preferably rebounding from the 50.0 level where previous troughs have been spotted in recent history.
From the daily chart, we can see the importance of 1.27 resistance. Clearing 1.27 and preferably 1.275 will allow price to trade above the rising trendline, which we’ve broken back in early August. Failure to break the trendline cleanly does not necessary mean that a bearish reversal will happen, as Stochastic readings suggest that a bull cycle is still underway. But rather, this failure would most likely keep a lid on bullish momentum – price may still be able to rally, but maybe on a slower rate of change.
Fundamentally, there isn’t anything that can support a long term USD/SGD rally other than sustained USD strength. Singapore’s economy growth is under some risks currently, but headline GDP growth is still expected to be above 2.5% for 2013, which is on par if not better compared to US’s economy. It has been mentioned ad nauseam that USD/SGD is highly driven by technicals recently, and hence traders would do well to continue watching how prices react along support/resistances moving forward.
In that vein, continue to keep a look out and see price reactions just above 1.27. There are reports of strong clusters of stop losses (for bears) around the region, and hence bulls should in theory receive short-term afterburners to propel us quickly above 1.27. If 1.27 manage to hold even if price manage to enter deep above 1.27, this would be a very clear signal that a reversal may happen.
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.