FX Trading Idea – USD/SGD

Forex Trading Idea

Technical View
Price reached a high of $1.4644 on 23 March 2020 after climbing from the low of $1.3421 on the 31 Dec 2019. This rally has also reached the Fibonacci 161.8% of the rally from Jan 2017 low to the high at $1.4081 on 20 Feb 2020. This could be a sign of a possible price high. We had chosen these two Fibonacci points as price was rising from the low to a high and the correction of this rally lies at the Fibonacci 50% correction point. The high 3 days ago was higher than the previous high of $1.4535 seen on Jan of 2017. The day after the new high, there was a Bearish Engulfing candlestick price pattern, which is another confirmation of a possible price high.

Stochastic has a bearish crossover in the overbought zone and MACD is heading lower, although MACD is still bullish with both its lines above the zero line. 20EMA is rising and its slope is steep at the moment which could mean this is a corrective decline.

Fundamental View
The US dollar is stronger than it should be due to the funding pressure in the market for US dollar. The Federal Reserve is already doing all it can to ease this situation by providing liquidity and funding at cheap rate. This funding pressure will ease as it cannot last forever.

The US interest rate is close to zero now. There are little reasons to hold on to US dollar like investors used to do in the past when interest rate was higher. A higher interest rate than its peer was the reason for investors to hold and hoard the US dollar. It serves as a safe haven with a higher yield.

The Federal Reserve had announced a QE program with an unlimited amount of government bond buying in an effort to keep US interest closer to zero. We had QE experience before. When the US had QE program before in the past, the US dollar was weak. We have also seen QE in Europe and Japan. In both instances, their currencies were weak. QE usually leads to a weaker currency.

Singapore economy is likely to be affected by the coronavirus but U.S. case is likely to be a lot more serious than Singapore. Shutdown is likely to be longer in the US than in Singapore. After the Federal Reserve cuts US interest rate, interest rate differential is now in the Singapore dollar favour which is likely to discourage long USD/SGD position.

Look to sell on a rally. Sell USD/SGD at 1.4460 for a movement lower to 1.4200. Stop can be placed above 1.4590.

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