Singapore dollar remains weak on poor Q3 GDP growth

The victory of Donald Trump in the US election has weakened not only the Japanese Yen, but also the currencies of other developed economies in South Asia. The Yen weakened mainly because of the unwinding of leveraged positions by financial institutions and large traders.

In the same manner, the Singapore dollar started weakening in the last week of September when the Pound started recovering from the low due to the market’s assumption that the negative impact of hard-Brexit is already factored in the exchange rate. In anticipation of such a development we had advised going long in the USD/SGD pair at 1.38, on October 14, with a target of 1.40.

To binary option traders, we had advised investing in a one touch call option. The target was met last week. Now, considering the below discussed developments, we believe that the USD/SGD pair is poised for another round of uptrend.

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Before the US election results were out, the analysts had a concern. If the market crashes because of Trump’s victory, then the Fed may have no other option but to postpone the interest rate hike. However, the soothing victory message of Trump alleviated the market’s concerns. The Dow Jones rallied to hit an all-time high of 18,873.66 on Thursday. The current scenario has further increased the probability of a US Fed hike in December. The market would certainly add up to the long positions in the Greenback.

The consumer prices in Singapore dropped 0.2% y-o-y in September, compared to 0.3% decline in August. It is the 23rd month of consecutive decline in prices. During the third-quarter ended September 2016, the Singapore economy grew 0.6%, compared to the downwardly revised 2% GDP growth in the prior quarter. The Q3 GDP growth also missed the analysts’ growth estimate of 1.7%. Thus, we anticipate the USD/SGD pair to rise further in the run up to the FOMC meeting in December.

The USD/SGD has hit a minor resistance at 1.4080. However, the rising momentum indicates that there is a little probability of a decline in the currency pair. The assumption is also based on the positive reading of the MACD indicator. So, it would be wise to go long in the currency pair as of now.

The currency trader can take a long position in the USD/SGD pair at 1.4100, with a stop loss order at 1.3940. The trader can book profit for the long position at 1.4240. Investing in a one touch call option would enable a trader to gain from the probable rise of the USD/SGD pair. The target level for the call option should not exceed 1.4240. As we usually say, a time period of at least one month should be allowed for the expiry of the call option.

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