USD/SGD Technicals – Bearish Breakout on both Short/Long term seen

Recent decline in USD/SGD is phenomenal, considering that USD is actually strengthening against  most major – beating EUR, JPY, GBP and CHF, losing out only to AUD and NZD and trading flat against the CAD on a W/W basis. That is Won4 Draw1 Lose2, for those who are counting. This is the same USD that has strengthened significantly so much so that Gold was pushed below 1,200 at one point this week. However, USD/SGD bears are having none of it, with price trading lower for the most of the week save for the recovery rally back on Wednesday.

This would automatically imply that SGD is so strong that it can negate the advances of USD. However, nothing has changed on the Singapore fundamental front – yes Industrial Production for the month of May did come in better than expected, but it is worth noting that USD/SGD did climb higher on Wednesday when the better numbers were released. Hence it is unlikely that this is our smoking gun. Looking at the market, there are reports of commercials selling USD/SGD heavily for the past 2 days. Perhaps, the reason is not fundamental, but technical. After seeing the failure of price to clear 1.275 on Wednesday despite the strengthening of USD, commercials with USD exposure have gotten cold feet, and wish to hedge out their exposure before further losses are incurred. For those who may be skeptical at such an assertion, you can simply look at the decline of USD/SGD in mid March 2013 which was due to the exact same reason.

Hourly Chart

From a technical perspective, the decline is significantly because the support level of the post FOMC Tapering announcement trading has been breached. Price has successfully rebuffed a retest, suggesting that bearish pressure is strong currently. This strong bearish pressure put price in a good position to break the previous swing low, where it is currently trading. However, to break the descending wedge to instigate a sharper acceleration below 1.26 is a different story altogether. Stochastic readings are tapering flat within the Oversold region. Together with the strong bearish pressure, we could see price straddling the bottom trendline lower, but a break may be more unlikely considering current over extension, coupled with Friday trading session, which tends to see countertrend moves especially given strong trend prior.

Daily Chart

Daily chart shows price breaking the rising channel that has been in play after the initial dip of early Jun. If this breakout trades below 1.26, we could see 1.25 and perhaps 1.24 opening up as potential bearish targets. Whether this Channel breakout has legs to run is dependent on short-term outcome. If bears do manage to trade lower on the short-term chart, the rally post Fed’s announcement would be wholly given up, which will have a long-term bearish impact for USD/SGD, and encourage more closet bears to enter the game. The same could be said about price trading above 1.27 and preferably 1.275 – a move such as this would re-affirm the post Fed rally, and set the stage in July to be more bullish.

More Links:
Nikkei 225 – Dodging the Evening Star
EUR/USD Technicals – Reduced risk of 1.30 breaking (for now)
Gold Technicals – Moving Back towards 1,200

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