FX Watch: USD/SGD in near-term consolidation, USD/CAD eyeing Nov 2023 high

Round-up

Further unwinding in big tech is the takeaway from Wall Street overnight, as sky-high earnings expectations are now put to the test with a series of tech heavyweight results up ahead. Microsoft’s after-market earnings provided an example of how stringent investors can get, looking beyond the usual top and bottom-line beat with focus on how artificial intelligence (AI) investments have been paying off.

That said, market appetite for risk-taking is still in place, as traction towards more value-focused sectors signal a rotation rather than a reversal. Seven out of 11 S&P 500 sectors closed in the green overnight, while the DJIA and Russell 2000 edged higher.

Attention will be turned to the upcoming Federal Open Market Committee (FOMC) meeting ahead. With a September rate cut fully priced by markets, further validation from the Federal Reserve (Fed) is now on the radar. However, the bigger question may revolve around what comes after, as market pricing for back-to-back rate cuts through the rest of the year may seem challenging for the Fed to acknowledge. A broadly data-dependent stance after September seems to be the likely scenario, which may offer some near-term stability for the US dollar.

USD/SGD consolidating within a broader downward trend?

The USD/SGD has been stuck in a near-term consolidation following a move to its four-month low, as broadly weaker US economic data seems to anchor the case of a September rate cut from the Fed. A breakdown of an upward trendline earlier this month may seem significant, which suggests sellers in greater control for now, as its daily relative strength index (RSI) struggled to cross back above its mid-line.

Ahead, the 1.336 level may be on watch as immediate support to hold, where a lower channel trendline support may stand. Given the lower highs, lower lows formation since April this year, any bounce may still leave selling-on-tops in focus, with near-term resistance to be found at the current upper consolidation range at the 1.346 level, followed by the 1.357 level.

USD/CAD eyeing retest of November 2023 high

The story seems to be different for USD/CAD however, which surged as much as 1.8% over the past weeks to register its highest level since November 2023. This follows as weaker growth prospects have prompted the Bank of Canada (BoC) to embark on an aggressive rate-cutting cycle, with the central bank trimming its key policy rate for the second month in a row to 4.5% and guiding for more to come.

On the weekly chart, having broadly been trading within a consolidation range since September 2022, the upper resistance edge is now put to the test, with any upward break likely to carry heavy significance after failing to do so on at least four previous occasions. Its weekly RSI has managed to defend its mid-line for now, which kept an upward bias intact. Any retracement on near-term overbought technical conditions could bring the 1.359 level into focus as immediate support to hold.