Singapore dollar trades at $1.2689

The local currency is stuck in a tight trading range against the US dollar amidst the ‘grim’ global economic picture, says IG Markets Singapore.

IG Markets Singapore said:

The Singapore dollar is stuck in a tight trading range against the greenback as the global economic picture continues to look grim.

The local currency trades at $1.2689 this morning.

It is finding a floor at the $1.2650 level but resistance at $1.2730 in the current climate.

Chinese data continues to disappoint and Asian currencies will struggle to make gains against the US dollar this week.

Important growth figures are due out on Friday from the world’s second biggest economy.

Meanwhile this week we have more US corporate earnings due out, which are so far downbeat and sending investors to safe-haven currencies.

DBS Group Research meanwhile noted:

The euro continued to falter despite progress on Spain. EUR/USD closed below its June 1 low of 1.2286 yesterday, setting its sights on the psychological 1.20 level.

Let us examine the positive developments first. Eurozone finance ministers have approved the draft EUR100 bn bank bailout program for Spain, with a formal agreement scheduled for July 20. Spain can expect to receive the first payment of EUR30 bn by the end of July.

Eurozone finance ministers also granted Spain a concession on meeting its fiscal goals – the deadline for Madrid to lower its budget deficit to 3% of GDP was now extended to 2014 from 2013. Spain’s budget deficit is expected to narrow to 5.3-6.3% from 8.9% last year.

What are markets worried about? The EUR30 bn payout is considered a “contingency reserve” until a full assessment of the Spanish banks’ needs is completed in September. The power of supervising Spanish banks will also be transferred from the Bank of Spain to the EC/IMF/ECB troika.

More importantly, according to the draft memorandum of understanding, any Spanish lender that seeks financial aid will need to fully write off preferred shares and subordinated bonds which will lead to possible losses for retail investors.

To complicate matters, the permanent bailout fund – the European Stability Mechanism (ESM) – cannot be ratified until it clears with the German Constitutional Court (GCC). German finance minister Wolfgang Schaueble urged the GCC to make a quick decision within weeks to avoid spooking an already fragile market sentiment over Eurozone’s handling of its crisis.

Italy indicated for the first time that it may join Spain to make a formal request for financial assistance from the ESM. The IMF warned that Italy’s public debt may be worse than initially thought. The IMF now projects Italy’s public debt to widen from 120% of GDP in 2011 to 125.8% in 2012, worse than its earlier projection of 123.4%.

Finally, Ireland also wants to seek financial assistance from the ESM to refinance a large part of its bank rescue costs.