LONG USDSGD Trade - Took Profit

After shorting USDSGD at 1.5030 on February 6th, our target of 100bps was met on February 9th when we exited our trade at 1.4930, the low went to 1.4904.

Our strategy with USDSGD is every time SGD strengthens to 1.49, we will establish a LONG USDSGD position.

In this instance, on February 9th, we re-establish a spot trade LONG USDSGD at 1.4950 (Stop/loss at 1.4910) and also a 3 month call USDSGD option at 1.4930.

We have decided to take profit on the spot trade and exited at 1.5270 for a 320bps profit.

We will be holding on to our call option as we are ‘deep in the money’ and we have more time to play.

The daily chart as at February 18th shows that the USDSGD has powered upwards through all the breaks but it appears that it may be losing momentum judging from the stochastic curves.


To confirm, this we must also look at the weekly chart to see whether or not the momentum is loosing its stem.

The following weekly chart as at February 18th suggests that there is still some steam left in the LONG USDSGD: -


Nonetheless, we have decided to put a stop/loss level of 1.5250 for our call option.

Trading in currencies can be interesting, exciting and also safe if one respect risk and manages the risk accordingly. Never…….never………never…………maintain NAKED positions, you are only asking for trouble, always establish stop/loss levels at the time when you do a trade, it is prudent and it is smart.

Also, it is important not to be too caught up with trying to trade too many currencies. I would suggest that you focus on two at the most, it will give you focus and will also reduce the overall risk aspects.

The next currency we are eyeing is possibly the AUDUSD, we will update you accordingly. Do keep on following our blogsite. Happy trading.

USDSGD near-term outlook – HIT!

On February 6th, we posted an article recommending a near-term USDSGD trade based purely on our daily charting. On February 6th, USDSGD was at 1.5030, based on our chart, we saw a high probability of USDSGD weakening by a possible 100bps and within 72 hours, on February 9th, USDSGD traded down to 1.4904 for a 126bps.

Near term trades are trades where if the call is right, it will happen within the next 48 hours to 72 hours.

We took profit on our spot position at 1.4930 for a 100 bps profit. We then establish a new spot trade to LONG USDSGD at 1.4950 and we also bought a 3 month call option USDSGD at 1.4930.

Please observe the daily chart as at February 17th posted below: -



Right after, it hit a low of 1.4904 it started climbing back up to the current 1.5278.

Our medium-term outlook on February 6th and today is consistent, please observe the following weekly chart and reflect it with the weekly chart of February 6th. The trend lines are holding with no change, which means that USDSGD will continue to strengthen towards 1.55 within the next 3 months.



Our advice therefore is if you are holding USD and are waiting for a higher level to switch into SGD…….you can afford to wait and potentially catch a higher level towards 1.55.

On the other hand, if you are holding SGD and you need to use USD, then, we would recommend that you convert to USD now or soon before the SGD continues to erode.

USDSGD near term and medium term outlook

We have been asked by clients to comment on the USDSGD near-term prospects and also medium-term outlook.

While all of us acknowledge that Singapore is going to go through a very difficult recession in 2009 along with the rest of the world. It is clear that from a fundamental point of view the SGD will stay weak relative to the USD for 2009. Coupled with the fact that the United States is still experiencing significant inflows from repatriation, we would see SGD under pressure as the United States is a significant trading partner of Singapore.

Notwithstanding, there is always still opportunity to trade in USDSGD from the charting perspective. Let’s have a look shall we? The daily chart above shows that in the near term the SGD may strengthen against the USD as the stochastic curve has turned downwards with the upper curve cutting the from the top and downwards.



The Bollinger curve which is the two curve embracing the price line has hit the upper Bollinger curve once and did not push through and it’s starting to move downwards. The overall Bollinger curve shows a narrowing which indicates a possible breakout in the near future.

The trailing uppercut and lowercut lines have intersected slightly ahead which also indicates a potential breakout.

We believe within the next one to two weeks, USDSGD will strengthen below 1.50 and move towards 1.49. In other words, a possible 100bps move.

The weekly chart shows a different story. The medium term outlook for the USDSGD is to move up towards 1.55.



The stochastic curve still indicates some strength in the USDSGD for the medium term. Moving averages indicate a stronger USD especially the 50 days and 100 days moving averages.

The uppercut and lowercut lines show a possible breakout in the medium term. In other words, USD will continue to strengthen against the SGD in the next 3 months to 6 months, however, thereafter, when the breakout happens………..who knows where it will go.

It will depend on how the economic situations of both Singapore and United States unfold in Q1 and Q2 before we can make a definitive call as to where USDSGD will move after the breakout.

Buying NZDSGD short term

Some of our clients have asked whether it is time to buy NZD?

The fundamental view of the New Zealand economy remains weak and there is still further room for interest rate cuts which will continue to put pressure on the currency.

The aggressive cut by RBNZ from 5% to 3.5% on January 29th, sends two clear signals that the government acknowledges the severity of the economic downturn and is doing something proactive about it and that inflation is a lesser issue.

Traditionally, interest rates of NZ has always been higher than the rest of the G7 countries. A year ago when the USD rate was at 5%, the NZD rate was at 8.25%, today the USD rate is 0.25% and the NZD is 3.50%. Therefore, on a relative basis, the trade-weight impact would be minimal.

So while we acknowledge that the New Zealand has still more downside to go before recovery happens, hence, the negative 50 day and 100 day moving average as seen in the chart.

However, because of the proactive interest rate cuts and stimulus package, the market views these actions as positive and helpful which is why the short-term outlook for the NZD appears to be ‘bullish’ from the stochastic momentum.
The Bollinger wave also suggests that in the near term, NZD has bottomed and a possible uptick is in sight. Normally when the Bollinger waves begin to contract like what we see her on the daily chart, it signals a possible breakout in the near term. Now whether it is going to break upwards or downwards, it is anyone’s guess.

We believe the NZDSGD will range trade for the next 3 months between 0.72 to 0.85.

Gold............all that shines may not be..........

Gold………….is it the desired asset class to be in given the current mess in other asset classes? Should we be jumping from the frying pan into the fire?

Gold has been the ‘talk of the town’ that it is time to move cash into gold because it is a safe haven asset class, because it is liquid, because the price is moving upwards.

It is a known fact that gold is a safe haven asset class; however, it has also been the most boring asset class with prices staying ‘flat-line’ like the plains of the Sahara desert for the past 20 years prior to the last three years. It cannot also be said unequivocally that it is a safe haven asset class because had we invested in gold for the past 20 years, we would have lost part of our principal. Why?

As you may well remember, during the Afghanistan War in 1980, the price of gold went from US250/- per oz to US$850/- per oz. Most investors would have bought gold during the third or fourth wave which would be an average of about US$600/- per oz. For the next 20 years, gold languished in the US$350/- + range. The investor would have lost partial principal and we have not included inflation over the last 20 years. So do we really think that gold is a safe haven asset??????? The following chart is illuminating!




The only safe haven asset class in the current financial crisis and economic crisis is time deposit in domestic currency or foreign currencies. This is the only asset class that is truly safe.

You will recall we qualified the last three years and it is for good reasons. Most banks were calling to buy gold starting from 2H 2007, now let’s look at the price chart in 2007 depicted below: -



Again, most investors would probably begin buying during the third or fourth wave, which would put us in 2008. Let’s have a look at the price chart in 2008 depicted below. As you can see, it was near impossible to decide at which level to enter in 2008……….it was like a roller coater ride.




In hindsight, gold today at US$930/-, an investor would have made some capital gains at most levels in 2008, except for the US$1,030/- level.

In the continuing financial crisis saga and the start of the economic crisis, we need to ask ourselves whether our investment strategy should be wealth preservation or wealth creation. Is this the time to think about making more money or is it the time to defend and preserve what we have? After all, if the whole world is in a recession, there is ample time to pick up equities at bargain basement prices for the big run up. However, it is not time yet!
Why did gold prices rise in the last three years when the ensuing 20 years prior it was just ‘dead’?

We would like to share with you the reasons behind why gold prices have been moving upwards in the past three years: -

1. The commodity bull-run cycle – it is no coincidence that the price of gold started to move simultaneously with base metals and food prices. The phenomenal growth of China with high double-digit GDP numbers sucked up everything the world had to offer; steel, oil, metals, gold……..etc.
2. Leverage - it provided the worlds’ traders and speculators with vast amount of monies to speculate on commodities and gold was not spared.
3. Financial crisis - lost of confidence in the banks, encouraged investors to shift monies away from banks and into gold.
4. Economic crisis - lost of confidence in the equity and bond markets and investors shifted monies away from these asset classes into gold.
5. Traditional buying - yes, numerous people still believe in the safe haven status of gold and in the current financial and economic mess, certainly some will be motivated to move into gold.

Of the 5 reasons, only three are relevant today; 3,4, & 5. The commodity bull-run cycle is over with the China’s growth coming to an abrupt stop. The credit crunch plus the financial crisis has clearly robbed the speculators of leverage and hence, the high volatility in gold prices seen in 2008 will probably not be seen again.

If the economic crisis is the reason why investors are moving from other asset classes to gold because of its ‘safe haven’ status then why, did it not happen in the last 9 downturns between 1975 and the present????



Of course, let’s not forget 1980 when gold shot up to US$850/-, but that was because of the Afghanistan War, then again, every other war after that didn’t motivate gold to move upwards.

We believe gold continues to be at current levels and may well move up to US$1,100/- because of ‘FEAR’, the loss of confidence in the banking sector, the loss of confidence in bankers, fund managers, regulators and politicians. Gold is something we can see and touch, it glows, and it gives us comfort in the current unprecedented times of disorder and disbelief.

Let’s take a moment to acknowledge RISK. After all, risk is what determines whether we make capital gains or make losses, worse lose principal.

We are entering the fifth wave of the gold cycle which means that the top of US$1,100/- is near. Let’s not forget in 1980 when gold hit a high of US$850/- and when it retraced, it went all the day down to US$300/-. We believe the retracement of gold in this cycle will take it down to US$550/-. Do we want to enter at the current level of US$930/- to chase for US$1,100/- when the downside risk is US$550/-, you be the judge of weighing the risk against the rewards.

Once again, we re-iterate the current turbulent and uncertain times require us to adopt a defensive strategy which mean capital preservation mode. We should not be thinking about trying to make capital gains, the risk does not commensurate with the potential returns.

Cash is KING, placing one’s monies in time deposits either in one’s domestic currency or foreign currencies is probably the most appropriate defensive and capital preservation strategy at this time.

When we are at the trough of the recession, when everything is ‘cheap’ relative to value, when the potential rewards outweigh the risks, then, we can begin to deploy cash into real estate and into equities and enjoy the potential 3 to 4 fold potential upside.

Weakness of the USD…………………………

Looks like the world has come to terms that the USD is not the preferred currency to be holding, especially since, all other major G7 currencies has cut their interest rates aggressively to within or near the 2% range; Switzerland at 0.50%, EU at 2.50%, U.K., at 2%, and Canada at 1.50%. Australia and New Zealand are higher at 4.25% and 5%, however, it is their historical lows.

The U.S., on the other hand has cut interest rates to near-ZERO!..............pretty much like Japan and we know what has happened to Japan for the past 14 years.

The Federal Reserve clearly acknowledges that the U.S. is in a deflation with the recent interest rate cut to 0.25%. It also suggests that the Federal Reserve has exhausted using interest rates as a monetary measure/policy. The action also affirms that inflation is not a concern now that deflation has become a reality and the recession a bigger problem.

It is left with fiscal policies to work with to stimulate the economy which is why the potential US$2Trillion expenditure…….huh…….deficit……….. by the impending Obama’s administration over the next two years. It might just work……….like the days of Reaganomics………..spend and spend and spend…………spend your way out of a recession and simultaneously, build a record high deficit. This was what happened back in the decade of the 80s under Reganomics…………till the bubble burst in 1990, and Bill Clinton ‘aka the Laundry Man’ came in to clean up the mess.

The lack of confidence by the American public is overwhelming with rising unemployment and falling real estate prices………….people just get scared and become paralyzed and it is going to get worse in 2009.

Corporate earnings announcements in Q1 2009 will be horrific and will send the stock market into the basement. We have to remember that though the current prices are attractive, however, based on future earnings, the price levels are still high. We must always remember that the price of a stock is the future cashflows discounted back to net present value.

We believe the worst is yet to come for the U.S., and the economy may hit rock bottom by the end of 1H 2009. At that time, opportunity will present itself for the brave and sophisticated to ‘dive’ back into equities at low low prices and then ride the roller coaster ride back up.

What that means for the U.S. Dollar is that it will probably continue to weaken till the middle of 2009, thereafter, when gold is exchanged for US. Dollars to buy into equities and foreign funds start investing back in the U.S. stock market……..the U.S. Dollar will strengthen!

USD/SGD to range between 1.51 and 1.60 in year 2009

In October 2008, MAS adjusted the NEER – Nominal Effective Exchange Rate curve from an aggressive position to a more neutral position in line with the current financial and economic environment.

Singapore posted its first negative quarter in Q3, 2008 of -0.5% with manufacturing taking a big hit of -11.4%. Expectations that Q4 will also be a negative quarter will put Singapore into an official recession.

Of course, the government is already articulating that Singapore is in a recession to pre-empt the expectations of Singaporeans and businesses in Singapore.

The Singapore governments’ proactive S$2.3Bn economic stimulus package will benefit SMEs and commerce in 2009 and help to soften the recession.

Singapore has been experiencing large capital inflows from businesses wanting to set up in Singapore as a preferred first world country. We are also experiencing large capital inflows from foreigners who desire to be PRs and citizens; they are moving their businesses here and also setting up home here. The Singapore real estate scene has benefited from these capital inflows.

This has kept the Singapore Dollar relatively upbeat vis-à-vis, the declining economic situation and environment. The huge amount of liquidity in Singapore has kept interest rates low which is helpful in an impending recession. Of course, with low interest rates, investors are compelled to move monies into better opportunities like real estate investments and equities. This has explained the relative resilience in the real estate market and the equity market.

Like we articulated in our previous post, we believe the USD/SGD will close 2008 in the range of 1.51 and 1.53. The outlook for 2009 is somewhat unclear at this time.

Too many factors are involved and it is a juggling act at this moment in time.

We believe that we will have a clearer picture as the first quarter of 2009 unfolds. In the meantime, with the collapse in commodity prices and prices of basic food items, inflation is capped and in fact is coming off. This puts Singapore in a good position to keep interest rates low to encourage economic activity. The local banks being well capitalized, will also be in a position to extend credit, that is, if they have the appetite to do so which we will see as time progresses into 2009.

Given that for some unexplained reason, USD has been identified as the safe haven currency………..why……..we cannot explained it. However, we believe the market appears to be acting irrationally, we suppose it is because the USD is the default world currency. However, that in itself does not support this view.

We believe there are still large amounts of leverage yet to be unwound. We saw the first tsunami wave of deleveraging from August to October and the chaos it caused all around the world.

We believe there will be another wave of deleveraging during the first quarter of 2009 which could possibly give more strength to the USD against all G7 currencies including the SGD.

Once we have a better feel of what is happening after Q1, 2009, will we be in a better position to fine tune the USD/SGD range.