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US Fed rate hike expectation turns Greenback bullish

us dollarFrom May through September, the poor economic data in the second-quarter of 2016 kept the Singapore dollar weak against most of the major currencies. However, the USD/SGD pair managed to remain range bound between 1.35 and 1.37 levels. The main reason for the Singapore dollar to avoid a steep fall against the Greenback is the postponement of the Fed rate hike.

However, the recent statements from some of the FOMC (Federal Open Market Committee) members make us believe that the USD/SGD will soon begin to rise. The reasons for having a bullish view on the USD/SGD pair are given below.

The consumer prices in the Singapore declined by 0.3% in August. Even though the decline was smaller than the 0.7% decline in July, still, the 22 nd straight month of a decrease in the consumer prices speaks volumes about the issues faced by the Singapore economy.

News Asia

Rise in the unemployment rate is another issue faced by the Singapore economy. At the end of the second-quarter, the unemployment rate was 2.1%, up from 1.9% in the previous quarter. The reported unemployment is the highest in the past two years. The seasonally adjusted jobless rate is reported by the Ministry of manpower Singapore.

In the US, the Cleveland Fed President Loretta Mester stated that Fed should not wait for the economy to heat up and a pre-emptive move is required to sustain economic growth. Mester also stated that she would certainly support a rate hike at the FOMC meeting to be held in December.

The Chicago President Charles Evans did not straight away back a hike in December. But, he stated that a rate hike may be appropriate in December. Many analysts are of the opinion that the non-farm employment data, which reflected an addition of 156,000 jobs in September, is more than sufficient for the US Fed to raise the benchmark interest rate in December. A survey conducted among economists showed that more than 70% of them believe that the Fed will tighten the policy at its next meeting. Thus, we can anticipate the USD/SGD pair to remain bullish in the weeks to come.

The USD/SGD pair is trading above the 50-day moving average of 1.3610. Technically, the pair has a strong support at 1.3460. The formation of new highs by the MACD indicator indicates that the currency pair is bullish. Thus, we can anticipate the currency pair to remain in an uptrend and reach the next resistance at 1.4090.

USD/SGD Pair: October 14th 2016

USD/SGD Pair: October 14th 2016

So, a currency trader can make a long entry near 1.3800. To mitigate speculative risk, a stop loss order can be placed below 1.3650. The profit for the long position can be taken at 1.4000 levels.

A one touch call option can be purchased by a binary trader to benefit from the anticipated uptrend. The target level for the call option should not be above 1.3980. Finally, the trader should select a call option contract whose expiry date is in the second-week of November.


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