From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
As risk comes off the table in this messy market, we want to continue to look for opportunities to bet on the US Dollar.
Bonds are catching a bid. Procyclical commodities are consolidating below overhead supply. The AUD/JPY is rolling over. The Yen is strengthening. And of course, King Dollar has begun to reassert its dominance.
Consider all this defensive posturing within the context of the choppy year-two environment we're in, and it appears investors are really beginning to seek shelter from the storm.
And what’s one of the most popular safe-haven assets?
The USD.
We’ve already laid out several opportunities to buy USD last month that you can check out here.
Today, we’re diving into yet another great trade setup materializing in the US dollar vs. Singapore dollar (USD/SGD).
Here’s a weekly chart of the USD/SGD cross:
After declining for more than a year, the USD/SGD recently broke above a 15-month downtrend line, and a key level of former support turned resistance ~1.35. The current formation sure looks a lot like the one back in early 2018, which was the last time this pair made a significant bottom and reversed higher. Will this time be different?
Only time will tell, but for now, it looks like we have another nice basing formation on our hands, and we want to take advantage of this potential move as the trend appears to be turning higher.
When we zoom in on the daily chart, we can see this double bottom reversal pattern more clearly. Also, notice how well our risk is defined at the pivot highs from March:
Last week, USD/SGD resolved higher from this 8-month base as it closed above those key prior highs around 1.35. Though the breakout wasn’t the most forceful, momentum is hovering around overbought territory, confirming these new highs.
We want to buy the USD/SGD cross against 1.35 with an initial upside target of 1.3725 and a secondary objective of 1.395.
On the flip side, if we break back below 1.35, risk is not in our favor, and this pair is a no-touch.
The fact that we continue to see more and more pairs breakout in favor of the dollar is additional evidence that this broad-based USD strength is likely here to stay for the foreseeable future.
If the US dollar continues to catch a bid, we have to imagine stocks and commodities come under increasing pressure.
Thanks for reading. As always, let us know what you think.
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