USD/SGD: Descending Channel Intact, Bearish Leg On Play

Hourly Chart

USD/SGD rallied stronger due to the early rally of USD/JPY brought about by the mini revival in Nikkei 225 during early Monday trade. The strengthening of USD from USD/JPY spilled over to other currencies, resulting in USD/AXJ moving higher. As this move was not fundamentally driven, it is understandable that follow through was not strong, with the rally being stopped by the descending Channel Top Price, and pushing price towards Channel Bottom currently.

Stochastic readings suggest that such a scenario is possible, with both Stoch and Signal lines pointing lower after pushing below the 80.0 mark. However, there is an interim support in the form of last Friday’s ceiling, which happens to be the confluence with 12th Jun support. If price is able to break the level, it is possible that bearish acceleration may take place, sending price faster towards Channel bottom. Additional bearish acceleration may occur if 1.25 and 1.248 are broken, and an extension of current bearish movement will take shape, piling on bearish pressure that may be able to break current Channel if momentum gain pace. Nonetheless, similar to the recent bullish failure, there should ideally be fundamental support for a stronger SGD or a weaker USD in order for a proper breakout of current Channel. If fundamental reasons are found wanting, there is a larger chance of support/resistances holding. That being said, trading a rebound of the Channel bottom in the short-term may be risky considering current bearish bias, hence aggressive traders seeking counter-trend trades should ideally seek out further confirmation of a rebound before committing.

Fundamentally, there isn’t much to be said for SGD for now with MAS unlikely to shift its monetary policy until the next meeting in Oct. Even post Oct, it is unlikely that the trading band of SGD will shift as MAS is likely to favor a stable SGD policy. Given recent surveys and forecasts showing GDP growth to be on track, with CPI slightly lower, MAS can use this opportunity to build up scope and use it only when it’s needed in the future. USD on the other hand is slated to be highly volatile with FOMC decision and Bernanke’s press conference coming on Wed (Thurs morning Singapore time). Bernanke is expected to continue remain dovish on QE3, but the short-mid term market reaction is still up in the air. If market believes in Bernanke’s influence, it is likely that USD will remain weak. However, it should be noted that USD has been strengthening since 2013 due to Fed’s Tapering rumors despite Bernanke’s repeated attempts to quash those rumors. Hence there is still a chance that USD will continue to strengthen no matter what Bernanke says. Regardless what is the outcome, should price trades near the Channel Bottom by the time Bernanke speaks, it is possible that the risk event may allow price to move back up to Channel top or facilitate a breakout move then.

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