US$/S$ extends upward movement

2018 has been a significant year for the Singapore dollar which saw the Monetary Authority of Singapore (MAS) changing its stance twice on the Singapore dollar's monetary policy band which has held firm for the past six years since 2012.

The first time was in April when the MAS increased the slope of the S$ Nominal Effective Exchange Rate (S$NEER) from a previous neutral stance to allow for a modest and gradual appreciation while keeping the width and centre of the band unchanged. The second time was in October which saw the MAS further adjusting the S$NEER slope once more to slightly steepen the slope. These changes would have afforded and allowed the Singapore dollar to rise. However, despite the changes in policy, the Singapore dollar has depreciated more than 6 per cent against the US dollar since the beginning of the year although this could be attributed more to the strengthening of the US dollar in 2018.

Looking at the weekly charts of US$/S$, after printing a three-year low just shy of 1.3000 in the third week of January, US$/S$ rallied to create the year's high of slightly above 1.3870 in the first week of October. This movement shows clearly that it has been on a strong upward trend.

In fact, there are three signs from a technical analysis point of view that US$/S$ would likely continue its upward movement.

Firstly, as at August, US$/S$ has been moving up along an upward trend line. Starting in October, US$/S$ has begun to show signs of consolidating as it has started to flatten and display a tapering range bound movement. This could be viewed as an ascending triangle which is generally considered as a continuation chart pattern.

In addition, placing a Fibonacci retracement against the low and high of the year, we see that the 23.6 per cent retracement level comes in around 1.3660. This level would function as a strong support level, thereby increasing the odds of a potential continuation to the upside for US$/S$.

Lastly, by including a Stochastic Oscillator onto the weekly US$/S$ chart and matching up the lows on the indicator against the lows seen in the price chart, we see there is a bullish divergence as US$/S$ creeps towards the oversold region.

When we take in all the points together, it presents a compelling argument that the price of US$/S$ is likely to continue to head up with the possibility to test 1.4000. Hence with the year-end holiday season approaching, it might be a good idea to get those online purchases done earlier rather than later as it could get more expensive.

Disclaimer: Chartpoint is provided by Phillip Securities Research for information only, and should not be construed as investment advice.