Singapore dollar to weaken on post Brexit concerns

The outcome of Brexit affected not only the currencies of the Euro zone countries, but also the currencies of South Asian countries such as Singapore and Japan. The SGD/JPY is one such currency pair which caught the attention of the Forex and binary option traders because of their strong one-sided movement. Following the result of the referendum, the SG/DJPY plunged from a high of 79.88 to 72.43. The discussion below explains why a trader should still remain bearish on the SGD/JPY pair in the short-term.

The Singapore economy is expected to face several issues because of the exit of the UK from the EU. The UK is only the 22nd largest trading partner of Singapore.

Only 1% of Singapore’s total shipments reach the UK ports. Thus, the UK’s exit will not affect the Singapore’s trade directly. However, the decline in the value of the Pound would affect the companies which have taken loans from the financial institutions in the UK. Those companies will have to shell out a higher amount in terms of the Singapore dollar. This will ultimately affect their bottom line.

Bloomberg TV Malaysia

Several European countries, including Netherlands, Spain, France, Austria, and Sweden, are now looking at the possibility of conducting a referendum similar to that of UK. Such a scenario would affect Singapore as Europe is the second-largest trading partner of the former. The Free Trade Agreement (FTA) signed between the EU and the Singapore in 2012 is yet to be ratified. A further split in the EU will jeopardize the entire agreement and fresh negotiations, which may run for years, have to be started again.

Thus, considering these issues, the Singapore dollar can be expected to remain weak. In the case of Japan, the nervousness among investors will continue to keep the demand for the safe haven currency strong. Until the global political and economic issues begin to resolve, the Yen will continue to rise against major currencies including the Singapore dollar.

The SGD/JPY pair has broken below the support zone that exists between 79.50 and 82.50. The MACD indicator is below the zero line and the momentum is negative. Thus, it seems certain that the currency pair will decline further to the test the next support zone ranging from 67.90 to 69.41.

A Forex trader should capitalize on the opportunity by going short near 76.50. The stop loss order should be placed above 79.50, while the take profit order should be entered above 69.60. The risk to reward ratio for the trade is a little above 1:2.

As far as a binary trader is concerned, a one touch put option trade would be the right choice as of now. A target price of 74.60 or higher will be beneficial to the trader.

Similarly, a one month time period for the contract expiry will also heighten the chances of success in the trade.

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