USD/SGD Technicals: Head And Shoulders Seen On Hourly

SGD has seen quite substantial weakness recently, with USD/SGD pushing from 1.265 to 1.285 within the span of 5 trading days. Some say that the rally has been brought about due to the intentions by Fed to taper down QE3 in the 2nd Half of 2013, and there may be some truth in it – as USD has indeed strengthened significantly since then, pushing USD/SGD higher. However, if we look at historical price action, we will notice that USD/SGD has already been rallying way before the announcement of QE tapers. Price was trading around 1.227 back on 9th May, and pushed higher above 1.27 by 28th May. In comparison, the rally since the announcement of QE tapering on 19th June only resulted in a rally from 1.26 – 1.285. The relevance of the rally post Fed announcement becomes even smaller when you realize USD/SGD has been effectively pushing higher since the start of the year.

Hence it is clear that there are other factors at play here. USD strength is certainly one, but we cannot ignore the strong technical influences that USD/SGD has due to the extremely thin liquidity of SGD. Furthermore, as major corporate users of SGD tended to be global conglomerates (due to Singapore’s economic structure), we have a high non-local interest in SGD, which increases the need for many SGD holders to hedge their positions whenever needed. This increases technical/speculative play aspects as corporations try to maximizes the profits and minimize risks with their SGD exposures.

Hourly Chart
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It is with this backdrop that we saw prices climbing down with corporations and real money flow spotted pushing USD/SGD lower since yesterday’s peak. The Monetary Authority of Singapore agent banks were also spotted selling USD around 1.28, sending price back down. This is not surprising as SGD Nominal Effective Exchange Rate (NEER) set by MAS is suppose to be on a mild appreciate curve. With SGD weakening so significantly in the past few weeks, it is possible that we are currently on the lower end of SGD trading band, resulting in MAS’s slight intervention.

This would mean that we should expect USD/SGD to nudge lower if MAS gets its way (which will most likely need some assistance from USD weakness). However, from a technical basis, MAS may be able to get its wish if bears cooperate. Currently on the Hourly Chart, we could be looking at a potential Head and Shoulders Top, with 1.278 neckline. Price is now trading below the 1.278 neckline but above the rising trendline. If price does break the rising trendline, 1.274 bearish target will be opened, and given the H&S pattern and also the high tendency for USD/SGD to be technically influenced, it is possible that corporations would want to sell USD/SGD to hedge exposures to protect their business profits – giving USD/SGD the potential to perhaps even break 1.274 to lower bearish targets.

Weekly Chart
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The longer term chart seems to agree with this outlook, with price finding some resistance in the form of Channel Top. A move back towards Channel Bottom is possible, but it is likely that price will find some support in the form of Channel Bottom and confluence of 161.8% Fib extension of the original leg of rally from Jan – Mar 2013.

Fundamentally, with MAS unlikely to allow further weakening of SGD due to fear of inflation getting out of control – most of Singapore consumer goods are imported, it is unlikely that USD/SGD will be able to rise unchecked for long. Hence short-term pullbacks are certainly possible. But bear in mind, if technical pressures and MAS intervention are not strong enough, USD bullishness may just be able to break MAS resolve, and we could see the technical bears easily switching to USD/SGD bulls. SGD holders have no long term loyalty to the strength/weakness of SGD. It is just business.

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