The spot reference is at 1.0597 (at the time of articulating) which is just 81 pips away from 1-year lows (i.e. 1.0516).

The 1.05 region is again seemingly providing decent support ahead of the 1.0450 lows set back in March 2015. We see the medium-term range over this support as corrective ahead of a breakdown towards 1.0250 and potentially key long-term support in the 1.01-0.99 region.

However, while over 1.05-1.0450 our intra-day studies are suggesting another bounce and consolidation can be seen as we head into the FOMC meeting 

Low implied volatility within EM: The SGD has one of lowest implied vols in EM (refer IV nutshell, 3m implied volatility at 6.77%, against 9.85% for the EURUSD), posing it comparatively economical to express a directional USD view through options. We expect overall EM currency volatility to increase in coming months alongside a stronger dollar.

FX Option Strategy:

We’ve already recommended USDSGD 3m one-touch knock-in 1.4970, indicative offer: 65% (spot ref: 1.4286) a week ago.

The one-touch option has a binary payoff of either zero at expiry if the barrier level is not reached, or the notional amount if the 1.4950 barrier level is triggered at any point over the 3m tenor.

The maximum leverage is 5 times. Alternative structure: For investors who prefer a cheaper structure, a USDSGD 3m European digital strike 1.4950 costs only 12% (leverage of 8.3 times).

The rationale is that correlation is strong: The SGD reacts with a very solid correlation to the overall dollar cycle. It has been closely allied to the EURUSD in the past year and the relationship should hold going forward given the SGD NEER framework.

Risk profile: EURUSD downside stalls, the failure of the EURUSD to convincingly break through 1.05 would prevent the USDSGD from heading towards 1.50. The maximum loss of both proposals is limited to the premium paid.