Is the Singapore Dollar Just Another Brick in the Wall?

From the desk of Ian Culley @IanCulley

In almost every market environment, there are assets we want to buy and assets we want to sell. That holds even when we think the only option is to sell.

Recently, the strong buys have been in commodities and cyclical areas of the market, while bonds and the major stock indexes have sold off. That's dramatically changed in recent weeks, though.

Now, all the major asset classes –  bonds, stocks, and commodities – are under pressure, as bears come for the leadership groups. It seems nothing is immune to bearish price action these days. 

Despite the broad selling pressure, there's still an asset we want to buy: the US dollar. That’s right, the good old greenback! It’s one thing the bears can’t seem to crack.

If we think about it from an intermarket perspective, a defensive bid for dollars makes sense given the downside pressure on risk assets across the board. We don’t think it’s a coincidence.

Regardless, the USD is strong and shows no signs of changing anytime soon. 

Last week, we outlined bases in the USD/NOK and the USD/SEK crosses. This week, we’ll highlight the Singapore dollar.

Here’s a chart of the USD/SGD cross:

Like many forex pairs with the USD in the numerator, the USD/SGD has been grinding higher for the better part of the calendar year. 

Now, it’s finding resistance at a key retracement level as demand is in the process of absorbing overhead supply.

If the bulls can take control here and send this forex cross higher, it would strengthen our bullish dollar thesis while carrying broad market implications.

If and when the USD/SGD breaks above 1.3960, we want to buy strength, targeting approximately 1.4550.

That’s great, but what does the Singapore dollar have to do with the broader market? 

Remember, the US dollar has been gaining ground against a growing number of currencies for months now. First, it was the euro, the pound, and the yen. Then there was the big base breakout against the Korean won.

Now, the list is expanding to include northern European currencies and even emerging market currencies such as the Chilean peso and Thai baht.

At this rate, it’s just a matter of time before the USD bests commodity-centric currencies, including the Australian and Canadian dollars.

While an upside resolution in the USD/SGD cross may not be on everyone’s radar, it would act as another brick in the wall, fortifying King Dollar’s dominance. It also suggests the recent breakout in $DXY is likely to stick.

If the dollar continues to gain ground, there probably isn’t much we want to buy out there based on what the market has shown us in recent weeks.

But we're still most likely buying US dollars.

Stay tuned!

Thanks for reading.

As always, let us know what you think.

And be sure to download this week’s Currency Report!