USD/SGD: Lower CPI Giving Scope For MAS SGD Weakening

Latest data from Singapore Statistic Department showed that June CPI came in +1.8% Y/Y, matching forecast. M/M inflation was slightly lower than the 0.3% forecast, coming in at 0.2% instead. On the back of this lower than anticipated number, Central Bank MAS slashed the full 2013 inflation forecast to a 2-3% range, but at the same time assuring the markets that GDP growth this year will “comfortably” meet the official 1-3% forecast.

Certainly the GDP forecast shouldn’t be in doubt considering that the range is relatively wide, and even after accounting for the continued decline in industrial output, it shouldn’t be an issue for Singapore to hit a minimum 1% GDP growth. Nonetheless, the lower than expected inflation growth will allow MAS to cut SGD a little bit looser. Previously, MAS reiterated that they are still currently keeping SGD on a mild appreciative curve. A big reason for this insistence for a stronger SGD can be attributed to MAS fears that inflation in Singapore will spiral out of control. All recent changes in regulatory requirements aimed to cool down the housing and automobile markets have failed, with prices continuing to rally up despite higher capital controls and higher cost of borrowings. Hence this lower than expected M/M CPI growth is welcomed with gladness, and it allows MAS slightly more scope to maintain a weaker SGD moving forward.

Hourly Chart
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From a technical perspective, price has broken the descending Channel Top after rebounding from the Channel Bottom and the 1.26 floor. Currently price is facing new resistances in the form of overhead Kumo and the 1.264 structural resistance. Stochastic readings is deep within the Overbought region now, and suggest that price may not be able to break up higher from here easily. Should price bounce lower from where we are now, the immediate bearish target would be the Channel Top once again. Should Channel Top be broken, quick acceleration towards 1.26 and Channel Bottom may take place as the breakout from Channel will be regarded as a “fakeout”. Conversely, should price manage to breach 1.264, the buoyancy provided by Kumo and the magnetism of the flat Senkou Span B may draw price towards the 1.266 resistance quickly. But given that Stoch readings will be extremely Overbought then, it is likely that price will find it tough to simply break 1.266 from current bullish momentum. A pullback of some sort hence would be reasonable in this case, perhaps using 1.264 as support.

Weekly Chart
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Weekly Chart shows price finding support via Senkou Span B and the confluence with the downward sloping trendline. Interestingly, Stochastic on the weekly chart is bearish, with a new bearish cycle being signaled right now. This bearish signal can be confirmed if price trades below the 1.26 support, more specifically the 1.257 Senkou Span B level. This may open up lower targets from 1.22 – 1.24, as the rally in June-July would be invalidated. However, given the previous track record of Stochastic readings in June, which saw Stoch readings rebounding up around 65.0, it is possible that Stoch readings may react similarly again. This would favor a move back towards July’s swing high, and affirms the rebound of trendline/Senkou Span B support and make a cash for a bullish extension of May’s initial breakout.

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