USD/SGD Technicals – Bullish breakout continues but band limit looms

USD/SGD has been steadily increasing since price managed to climb higher above 1.24 ceiling and rising trendline (see Daily Chart below). The rally can be attributed to stronger USD due to US economic recovery, but SGD weakness continue to play a part in USD/SGD climb. In the recent budget, it is announced that taxes will rise and levies on foreign laborers will increase, resulting in higher costs of operation for many foreign firms. This spurred a net outflow of funds from Singapore which is deflationary for SGD. The recovering US economy comparing to a weakening SG also encourage investors who entered SG seeking safe haven to look for higher alphas elsewhere, pushing SGD lower. The Monetary Authority of Singapore (MAS) has been silent thus far despite the rally but they should be happy that SGD is finally weakening significantly without their intervention, which will help to alleviate exports concerns.

Daily Chart

Daily Chart show price continuing bullish momentum post the 1.245 breakout. Stochastic has reached a recent high and that could dampen upside momentum temporarily. Support can be found in the form of rising trendline and the 1.245 line. Breakout of 1.245 will be invalidate should price manage to trade below 1.245 once again which could open up 1.235 support as a bearish objective, breaking which may accelerate bearish momentum towards 1.22.

Hourly Chart

Hourly Chart is also somewhat bearish. Though one could draw a rising Channel connecting adjacent peaks and troughs, Ichimoku tells us that bearish momentum is currently strong with a bearish breakout of current Kumo. Though current Kumo is still bullish, the thickness of the Kumo suggest that a “twist” could be coming soon. Senkou Span B (underside of Kumo) is also providing additional resistance below 1.248 to keep price deflated. If price manage to bounce lower from here, we are likely to see Stochastic entering Oversold region which may help support price together with the bottom of the rising Channel (not drawn on chart).

Traders will be keeping watch on MAS’s wording during the upcoming April meeting. Though exporters want a weaker SGD, MAS may actually want to maintain USD/SGD as current level due to risk of hyper-inflation. On the flip side, longer term inflation outlook will soften if foreign funds continue to exit Singapore, which will afford space and scope for MAS to weaken SGD further to boost the weakening economy. However, Finance Minister Tharman has recently mentioned that Singapore is not looking to move the undisclosed trading band anytime soon. That is neither dovish nor hawkish, as the band works both ways, similar to what PBOC does with the explicit 1% limit. If assume that 1.23 is on the lower end of the trading band, is 1.25 considered the higher end? If we see agent banks selling USD/SGD around 1.25 levels, that will be a good indication of MAS tolerance and also short-term MAS preference for the direction of USD/SGD. Keep your eyes peeled.

More Links:
BOJ Minutes – “Risky Assets” Tickles Yen Weaker
GBP/USD – Trying to Hold On to 1.49
AUD/USD – Moves Well Off Support at 1.02

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