Day one: our potential USD/SGD trade

Potential strategy: sell USD/SGD at market, with a potential stop loss at 1.2740, and a profit target at 1.2590.

On the four-hour chart USD/SGD is testing the 38.2% retracement of the 1.2830 to 1.2582 sell-off and downtrend resistance drawn from the January 23 high. I look to potentially play the longer-term downtrend and feel this rally in the pair is corrective in nature and thus could see a good reversal in the coming days from current levels.

The short-term trend on the four-hour chart is higher, but there are signs that momentum is falling and we could see the MACD fall below the signal line. However, on the daily chart the MACD is still below zero, suggesting rallies should be contained with the bearish trend.

A daily close above the downtrend could be significant for the bulls and could see momentum-focused traders taking advantage of the break; hence I look to protect the position and will subsequently look at more positive trade opportunities.

In terms of drivers we get Singapore CPI (January) at 16:00 AEDT today and the market is pricing in a slight uptick to 1.6% (from 1.5%). On Wednesday we also get January industrial production and when annualised could see a 6.8% increase, which again could erase some near-term concerns around the Singapore economy.

On the USD side of the equitation there are a number of Fed speakers this week including Tarullo, Rosengren, Pianalto, Fisher and Janet Yellen on Friday at 02:00 AEST. The USD is still pricing in a Fed that is likely to taper at $10 billion per meeting, and I’d concur with that, so this should limit the upside in the USD.

Perhaps the big driver for the pair though will come from USD/CNH and USD/CNY, with USD/SGD finding a much stronger correlation of late. The 30-day correlation in itself is negative, however there’s no denying that when USD/CNH started moving aggressively higher in mid-January, so did USD/SGD. I feel the correction in USD/CNH has run its course, so any pullbacks in the pair could benefit this idea.

The risk is of course that USD/CNH keeps rallying, despite the PBOC moving the fix lower.

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