AUD/SGD – Sell on Risk / Reward

AUD/SGD – Sell on Risk / Reward

Given recent strength in AUD, risk / reward factors now appear to be favouring a sell AUD/SGD trade. The Australian Dollar has appreciated strongly against many currencies over the last fortnight. A buoyant minerals sector and higher interest rate regime are strong medium term contributors to this strength, and these key positives remain largely intact. However, the short term outlook appears to be turning negative for the AUD.

In looking for a correction in AUD, some traders will favour a short AUD/USD trade. (See Ric Spooner’s forthcoming analysis). The complicating factor of the withdrawal of USD stimulus (the end of QE2) is to me a cause for caution on that pair.

Singapore’s ongoing superior growth rate and trade surplus support a stronger SGD, despite its all-time highs against the USD.

By contrast, the AUD is within 4% of a 19 year high against the SGD.


Source: Bloomberg

Turning to the chart, the AUD/SGD is running up against resistance. Although it has surpassed the November 2010 high, it is just below the December highpoint and the resistance of the up-trend line. Additionally, the Bollinger Bands analysis suggests that the AUD/SGD is stretched, although the widening bands means there is not a clear sell signal as yet.

Nonetheless, the risk / reward ratio could lead traders to a short trade now. With a clearly defined stop loss level above resistance, and targets that offer greater potential profits than the stop loss, there is a case. Of course, some traders may prefer to put this one on their radar, and wait for a signal that suits their individual trading strategy.

Possible Trading Levels

1)      Sell AUD/SGD at current levels, 1.3066. Stop loss at 1.3210, profit target at the short moving average, 1.2841

2)      Sell AUD/SGD at current levels, 1.3066. Stop loss at 1.3210, first profit target at 1.2841, second profit target at January lows 1.2660, third profit target at March lows 1.2470.

3)      Sell AUD/SGD on a move towards the 2 year high at 1.3190. Stop loss at 1.3225, first profit target at 1.2841, second profit target at 1.2660