Singapore dollar loses some ground to the greenback

Currency traders had been stocking up on Singapore dollar ahead of the European Central Bank’s meeting, says IG Markets Singapore.

IG Markets Singapore said:

The Singapore dollar lost some ground to the greenback last night as risk assets came off the boil after the ECB failed to announce more asset buying.

Currency traders had been stocking up on Singapore dollar ahead of the European Central Bank’s meeting in the hope it would ease monetary policy and improve the outlook for the global economy.

But as soon as this failed to materialise, all risk assets slipped back including Asian currencies. The Singapore dollar was left teetering on the edge of $1.25 this morning.

The next big risk event is tonight’s non-farms payroll data which could see this $1.25 level tested if it comes in softer than expected. Early signs are for more disappointment from the world’s biggest economy.

The US dollar is still seen as the strongest safe haven currency and could strengthen if employment figures failed to deliver a sense of optimism about a global economic recovery.

DBS Group Research meanwhile noted:

The market betted on the European Central Bank (ECB) and lost. Yesterday’s ECB governing council meeting would not be easily forgotten.

On July 24, EUR/USD fell to a low of 1.2040, threatening to break below the psychological 1.20 level. 10Y government bond yields in Spain hit a high of 7.621% that day, threatening to push Spain towards a full bailout.

The panic subsided the next day (July 25) after ECB governing council member Ewald Nowotny put forth the idea that the ECB may grant a banking license to the permanent bailout fund, the European Stability Mechanism (ESM).

ECB President Mario Draghi followed through the next day (July 26) with his pledge to do whatever it takes (within the ECB’s mandate) to preserve the euro.

EUR/USD recovered to a high of 1.2389 on July 27 on belief that the ECB was ready to reactivate its bond buying program to lower the borrowing costs of struggling EU sovereign countries. This notion was quickly challenged by opposition from the German government and the Bundesbank which led EUR/USD to start returning gains.

The trading into and after yesterday’s ECB governing council meeting was a rollercoaster. Initially, EUR/USD surged to an intra-day high of 1.2404 from the day’s open of 1.2224 when Draghi started the press conference that the ECB was drawing up plans for bond purchases.

As the press conference moved on, Draghi started to clarify that this did not involve giving the ESM a banking license and affirmed that struggling sovereigns first need to approach the bailout funds for support.

EUR/USD fell to a low of 1.2132 yesterday. We reckoned that the euro will be looking to test that critical 1.20 support again.