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Macro and Vol Commentary

The SGD has rallied in recent months as the global economy starts to improve along with trade. Does this mean further strength from SGD in the near term?

Singapore data

  • GDP forecasts for 2021 have taken a hit from the rise in COVID-19 cases in the last few months and the near lockdown and slow release of restrictions. We expect growth to be 6.1% for 2021.
    • Domestic demand has recovered relatively quickly; retail sales were down in April -1.3% m/m; this was down from 3% the previous month. On a year-on-year basis, retail sales were up 54%, outlining the progress of the economy.
    • GDP will improve in Q3, but the key to this will be the vaccination rate; as of June 29th, total vaccinations in Singapore was just above 5m. The small population should allow the economy to re-open sooner.
    • The re-opening of the US and European economies will be a boon for Singapore.
    • Non-oil domestic exports on a month-on-month basis were down 0.1% in May, which was drastically below expectations of a 4.5% improvement. However, this was still an improvement on the previous month at -8.8%.
      • On a year-on-year basis, non-oil exports were up 8.8%, improving from the previous month by 6%.
      • Electronic exports y/y were up 11%, a marginal improvement from 10.9% in April.
      • The Chinese economy is consolidating after robust growth in the last 14 months. However, credit tightening and inflated prices have prompted the economy to be cooled.
  • The labour market is improving; this is predominantly the residential employment market. We expect the residential labour market to strengthen while the supply of foreign workers is low due to travel restrictions. Firms' difficulty replacing outgoing foreigners will be pronounced until Q4 2021 or even 2022 when the labour supply improves.
    • We expect there to be slack in the labour market as a result. Productivity is set to improve, and the spare capacity in the labour market may keep wage pressures muted.
  • Inflation reached a 7-year high in May at 2.4% y/y, core inflation was 0.8% y/y up from 0.6% y/y.
    • There was a jump in housing due to the Services and Conservancy Changes rebate to public housing, which was 0.6% y/y.
    • Transport costs were significantly higher, up 11% y/y in May, up from 9.7% y/y in April.
    • Inflation is a global obstacle, but fiscal policy is doing the heavy lifting; this is outlined by the Job Support Scheme, which will see employers receive s$2.2bn from June 30th, supporting domestic demand.
    • Negative output gaps at significant trading partners will keep inflation subdued. However, higher commodity prices and improving aggregate demand will see inflation creep higher in the near term.
    • We expect the Monetary Authority of Singapore to strengthen the SGD, which will also aid inflation.
  • We expect the MAS to resume their SGD appreciation bias in October and start to tighten their monetary policy. The MAS meet twice a year, and as global trade improves, we expect the currency to strengthen once again.
  • Monetary policy is expected to remain accommodative in historical terms, but we expect policy to tighten.

SGD Flow

  • In the week of June 21st, we saw leveraged and real money significantly reduced their exposure to SGD, -8.54 and -5.37, respectively.
  • In the week to June 28th, 1-year cumulative flow for leveraged money reached -293.31, with corporates at 405.05
  • The 65d correlation of daily flows vs currency return for real money is at 20.1%
  • Corporates 65-day correlation of daily flows vs currency return is at 17.9%

We expect USDSGD to continue to strengthen in the near term as the economy recovers, along with global trade. COVID-19 has prevented the free travel of workers; this has reduced the supply of labour. We expect this to cap the improvement in the labour market in the near term. Domestic demand is boosted by fiscal policy and the Job Support Scheme. The change in language from the Fed could see USD remain strong against in G10 in the immediate term, however with the MAS expected to resume their SGD appreciation policy, and in our view, USDSGD will continue lower to 1.32, the long term target is 1.30, but we would need to see dollar weakness through to 2022. We favour selling USDSGD rallies significantly above 1.3450 and remain bullish on the SGD.

SGDUSD 1-month Implied and Realised Volatility

Volatility Commentary

With the MAS’ hands on approach to managing SGD FX rates USDSGD vols are traditionally low (1-month vol is currently trading at circa 3.7 implied vol) and with a reasonably strong vaccine roll out in Singapore allowing to further open up bolstering economic recovery. As with all central banks right now the MAS will be keeping an eye on inflation (as mentioned above) and we expect the MAS to continue its usual hands on approach to SGD FX rates and expect them to push for a stronger SGD in the next months.

USDSGD Trade Idea 

  • Buy USDSGD Put spread in 3-month expiry

  • Doing in 10m USD per leg with strikes 1.3300 & 1.3100 for cost circa 20k USD premium

  • Trade benefits from USDSGD spot moves down and has relatively low upfront premium due to low implied vols

Positioning Charts

USDBRL NDO Positioning Data 16/06/2021 - 23/06/2021

This week to June 30th we saw options have a higher notional value than the previous week. There remains more emphasis on put options. The spot market has broken below 5, but we saw less cover below 4.70 with the majority of the range between 4.8-5.20. Options with an expiry in the next week are predominately puts with a large notional. There is little upside cover and the options market continue to favour the downside. 

USDBRL NDO Positioning Data 23/06/2021 - 30/06/2021

USDCNY Vanilla Positioning Data 16/06/2021 - 23/06/2021

The strengthening of the spot market has caused the options market to shift higher. Volumes were lighter and with fewer options executed with expiry in June. We have not seen a significant rush for upside cover since spot has rallied in the last few weeks. The range is narrower in chart 2 and this suggests the market is expecting  USDCNY to consolidate in the immediate term. There is a moderate bias towards the downside in the longer run but the USD is starting to stabilise and this mean a wider range for the currency in the longer term.

USDCNY Vanilla Positioning Data 23/06/2021 - 30/06/2021

USDSGD Vanilla Positioning Data 30/04/2021 - 30/05/2021

There were fewer options traded in the month to June 30th, the range is a lot tighter in the second month. We have seen less options executed below 1.31, this is in line with the movement in spot. Singapore's economy is strengthening and the MAS is expected to tighten MP policy in October and we expect SGD to strengthen, in the coming months. We would expect greater cover on the downside in the long run. however a more hawkish fed in Q4 2021 and 2022 could mean an SGD rally is short lived. 

USDSGD Vanilla Positioning Data 30/05/2021 - 30/06/2021

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases


Technical Charts

JP Morgan Global FX Volatility Index 

The index has improved in the last week after finding support above 6.45 and is now at 6.76. The stochastics are falling out of the overbought territory, and the MACD diff is positive and converging, suggesting lower prices in the near term. Near-term support at 6.40 has held firm, and to confirm the outlook of higher prices, the index needs to take out resistance at 200 MA 6.86. This would help confirm the recent double bottom formation, with secondary resistance at 7.00. On the downside, if resistance holds firm, this could trigger losses back through support at 50 and 100 MA to 6.60. Near-term momentum favours the downside, and we could see prices fail into the MA support levels as apprehension in the market increases.

Dollar Index

The recent trend has been strong as the index has strengthened, but resistance at 92.74 has held firm prompting a marginal correction to the downside. The stochastics are falling, with the %K/%D stochastics still in the overbought territory, the MACD diff is positive and converging, and this could trigger a break of the 76.4% fib level at 92.227 in the near term. A break of this level would bring into play 50 MA at 92.01, a breach there would confirm the long bearish candle. However, if prices break above 92.74, this could set the prices towards 93.00. The indicators point to lower prices in the near term. 


The pair has continued to weaken as selling pressure dominates the market. The pair has found support at 0.74, in order to confirm further selling pressure, the pair needs to takeout this level. The MACD diff is negative and converging on the upside, suggesting a change of trend in the near term. The stochastics are converging on the upside in the oversold, we could see a correction on the upside towards the 50 MA at 0.7435. This would confirm the recent bullish engulfing candle. On the downside, a rejection of prices above 0.7428 would pave the way for a breach of support at 0.7392. We believe prices will remain support in the near term.



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