The strategy: We've already advocated this strategy in our earlier post. Stay firm or initiate longs in USDSGD 3m one-touch knock-in 1.4950 on below strong grounds of fundamental attributes that are explained below, indicative offer: 20% (spot ref: 1.4354).

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).

Tracking EUR to parity: As stated before, in Q1’17, the EURUSD has broken through the technical support at 1.05 which is line with the projection, during this quarter this should maintain below this level and to reach parity (Trumped up changes). We previously provided trade recommendations for a significantly lower EURUSD (EURUSD -Dipping or taking a deep dive?). If the pair does indeed test 1.00, USDSGD should rise towards 1.50.

Correlation is strong: The SGD trades with a very strong correlation to the overall dollar cycle. It has been tightly linked to the EURUSD in the past year and the relationship should hold going forward given the SGD NEER framework (refer above graph).

Low implied volatility within EM: The SGD has one of lowest implied vols in EM (3m implied volatility at 6.7%, against 10.0% for the EURUSD), making it relatively cheap to express a directional USD view through options. We expect overall EM currency volatility to increase in coming months alongside a stronger dollar