1. Reports
  2. FX Options Weekly

Macro and Vol Commentary

The Singapore dollar has rallied strongly despite weak economic data but can the rally continue.

Singapore Economy

  • GDP data was predictably weak in Q2, at -13.2% Y/Y and -42.9% on a Q/Q basis. The sector performances give more clarity to the current economic environment, with the manufacturing declining 31.7% Q/Q (SAAR), the service sector down a similar amount by 37.4% Q/Q; but it was the construction sector that fell the most, declining 97.1% Q/Q and 55% Y/Y
  • The outlook for the construction sector remains softer than the recovery of other sectors, and project restarts have been more gradual
  • The manufacturing PMI returned to expansionary territory for the first time since January in July, at 50.2. This helps to confirm the recovery of the sector as on a sequential basis; new orders, exports, factory output, and the inventory index all improved. There was some weakness in the finished goods, imports and input prices. We expect the recovery to continue but need to see more from finished goods and imports
  • July non-oil domestic exports Y/Y improved to 6.0%, slower growth than the month prior, which was 16.1% Y/Y but revised to 13.9% Y/Y. On an M/M basis, growth was stronger than expected, at 1.2%, an improvement from June’s figure of 0.5%.
  • This improved export data, in conjunction with manufacturing export orders, suggest the export market is waking up
  • Retail sales have improved on a sequential basis to 51.1% M/M, but on Y/Y basis retail sales are down 27.8% in June, but this was an improvement on May, which was -52.0%
  • Food and beverage sales declined between April and May, contracting 47% and 51% respectively Y/Y. Jewellery, watches, clothing, and footwear sales were down in the same period by 85%
  • The mobility of the economy has rebounded strongly in June and July but remains below pre-pandemic levels
  • The labour market weakened in Q2 as unemployment increased to 2.9%.
  • The travel sector saw a large cut to headcount, as did construction, which is a reason why this sector is struggling to restart strongly
  • ‘Domestic Orientated’, such as food and beverage, and retail also reduced headcount, but we expect these sectors to increase headcount once again as the economy recovers
  • We are seeing less over-time hours and more short working week indicators, which highlight the shift in the economy
  • The vacancies to the unemployed ratio has fallen below 0.8, and vacancies in the labour market stand at just below 1.0
  • As business optimism picks up, and we see a more sustained recovery, the labour market should improve
  • Inflationary pressure has fallen negative in recent months in Singapore. CPI Y/Y and CPI Core Y/Y in June were -0.5% and -0.2% respectively
  • Price increases for food services have started to slow in Q2 2020, but food inflation is a threat going forward, and we watch the data points carefully
  • We expect inflation to remain soft going forward due to weak economic sentiment, labour market and domestic consumption

Singapore Government and Monetary Authority Stimulus

  • The government released an additional stimulus of $5.8bn this week. This involved additional wage subsidies and extra support for the aviation and hospitality sectors
  • The funds will be provided by unused money from earlier budgets
  • The previous stimulus saw S$33bn in May, extending foreign-worker levy, and wage subsidy until August, whilst raising the wage support to 75% for badly hit sectors
  • The Monetary Authority of Singapore offered S$500mb of 6-month floating-rate notes. They are linked to Singapore Overnight Rate Average (SORA)
  • Monetary policy is deemed ‘appropriate’, and we expect the majority of support to come from fiscal spending

The Singapore economy is showing signs of recovery, much like other economies, but it is exposed to the weak export market and lack of tourism. Electronic exports grew again in July but only by 2.8% Y/Y, down from 22.2% in June. With cases rising in Europe, governments are keen to prevent going into full lockdown once again; however, consumer demand for electronics could waver as employment support schemes come to an end and unemployment increases. Stimulus measures from the Singapore government and Monetary authority are sufficient at this time and have the capacity to increase support if needs be. The dollar has struggled in recent weeks, and we expect this to continue as hedge funds and other institutions increase short positions. We expect the trend to continue to favour SGD in the immediate term but remain wary of a correction to the upside.

Volatility Commentary

Macro Comment

We are still seeing a generally weaker USD, and risk-off asset XAUUSD is still riding high, as the US stimulus talks stalled between Democrats and Republicans, unable to find a middle ground on the amount that should be spent. On the whole short date, Macro FX vols remain steady. However, we may see that change in Q4, with the UK-EU transition period cliff edge looming, and the US Presidential election further being complicated by President Trump’s attack on the post office with mail-in voting being a major issue this year amidst remaining high CV19 cases in the US.

USDSGD Vol Comment

We’re seeing USDSGD spot and vols approaching near pre-CV19 levels. As with all economies, the Singapore economy has been hit with a recession, and the government has recently introduced a fiscal stimulus package to help further keep the economy afloat. In terms of FX spot and vol, we expect the general trend of vol realising lower than implied to continue, especially with the MAS consciously managing the SGD against other currencies and likely not wanting to inject volatility into the SGD on the FX market as the government tries to manage their recovery.

Trade Idea

  • Priced in 10m USD a leg
  • Short USDSGD straddle with 2-month expiry and delta hedge short gamma position
  • Sell for circa 4.4 vols, and trade gives short vega of approx 32k USD Vega
  • Note this strategy is only suitable for investors who are set up and capable to dynamically delta hedge short vega/gamma position

USDSGD 2-month Implied and Realised Volatility 

Positioning Charts

USDSGD July-August Vanilla Options Notional >$5m

USDSGD May-June Vanilla Options Notional >$5m

Technical Analysis 

JP Morgan Global FX Volatility Index 

The index has rallied in recent weeks with the index then holding above key support at 9. The stochastics are starting to fall but are in overbought territory, the MACD diff is positive but is not diverging anymore. This is in keeping with the consolidation as it suggests buying pressure is waning but to confirm a change in trend, the index needs to break below trend support and the 100 DMA at 8.90 to indicate a change in trend towards the 200 DMA at 8.24. On the upside, if the index holds above-trend support this could trigger a test of 9.50. A break of this level would confirm the trend and prompt a test of resistance at 10.

Dollar Index

The index has sold off to test support around 92, this level held firm and the index has rebounded to test resistance at the 100 DMA. The indicators suggest we could see higher prices in the near term as the stochastics are positive with the %K overbought, the MACD diff is positive and diverging suggesting higher prices in the immediate term. The bullish engulfing candle and three white soldiers suggest we could move higher but the index needs to break above the 100 DMA and then target 94. The gap between the stochastics suggests a move higher but the 100 DMA has held firm in recent weeks. If this holds firm, we may see the index decline back towards 92 but the index needs to break below this level in order to suggest a continuation of the downtrend. Superseding this level support stands at 91.125. We anticipate the downtrend to remain intact.


The recent trend has been strong as USDSGD has weakened but support at the 1.3635 has held firm prompting a correction to the upside back to the 100 DMA. The stochastics are rising with the %K stochastic is overbought, the MACD diff is positive and diverging and this could trigger a break of the 100 DMA in the near term. A break of this level would bring into play trend resistance, a breach here would confirm the three white soldiers and bullish candles. However, the upside tails into the 100 DMA suggests lack of higher prices, to confirm the two shooting star candles prices need to break back towards 1.3635. A breach of this level would reaffirm the trend on the downside with the 23.6% fib level at 1.3562.





This is a marketing communication. The information in this report is provided solely for informational purposes and should not be regarded as a recommendation to buy, sell or otherwise deal in any particular investment. Please be aware that, where any views have been expressed in this report, the author of this report may have had many, varied views over the past 12 months, including contrary views.

A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

Please contact the author should you require a copy of any previous reports for comparative purposes. Furthermore, the information in this report has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Data in this report has been sourced from Bloomberg unless otherwise stated. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy.

This report is not subject to any prohibition on dealing ahead of the dissemination of investment research. Accordingly, the information may have been acted upon by us for our own purposes and has not been procured for the exclusive benefit of customers. Sucden Financial believes that the information contained within this report is already in the public domain. Private customers should not invest in these products unless they are satisfied that the products are suitable for them and they have sought professional advice. Please read our full risk warnings and disclaimers.

Sign-up to get the latest Non-independent research

We will email you each time a new report has been published.

You might also be interested in...

Daily Report FX

A morning report covering fundamentals and technicals for USD, EUR, GBP, JPY, and CHF.

Daily Report Base Metals

Our daily commentary, covering market news and closing prices of LME aluminium, copper, lead, nickel, tin, zinc, iron ore, steel, and precious metals.

Daily Report Softs Technical Charts

Technical analysis and charts for the key sugar, cocoa and coffee contracts.

Quarterly Metals Report – Q3 2022

Our analysts provide an in-depth analysis of the metals market and current macroeconomic conditions. The environment has weakened significantly as growth fears rise amid persistent high inflation. Central banks are data-dependent, which could mean they slow rate hikes as growth starts to slow. This has meant a downside to the US 10yr yield, but also we see a downside to rate hikes in Q4. Europe will likely enter a recession before the US and take longer to recover, but material availability is significantly lower, shown by low inventories.

FX Monthly Report June 2022

Monthly commentary covering the FX markets, providing insights on recent developments on select currency pairs. This month we look into the JPY and the pressure the BOJ is under to change their monetary policy as JPY continues to weaken against major currencies. Economic data is weakening and inflation is less of a problem in Japan, but yields continue to test the cap.