Currency Briefing - what you need to know for Mon Feb 27, 2012

Weak economic data caused the Singapore dollar to slip against the US dollar.

IG Markets Singapore said:

The Singapore dollar has slipped against the US dollar as the local currency faced downward pressure from weak economic data. It is trading at $1.2582.

On Friday, industrial production figures for Singapore were released showing a contraction of 8.8% in January, compared to the same month in 2011. Singapore is relying on the biomedical manufacturing sector to help its factory output levels but the sector is highly volatile and difficult to predict, although it is currently witnessing a boom time.

The STI has also seen a slight retreat from its bullish start to the year, as a series of disappointing corporate earnings are released. This is causing a few jitters among Singapore’s traders as to the true health of the economy and this is weighing down on the currency.

The G20 meeting over the weekend has done little calm investors’ fears over the state of the eurozone and the negative effect on global markets. A stalemate between the G20 and Europe is currently stopping any release of funds from the IMF to ease the crisis. The US economy is still seen as the safest bet to pull the global economy out of the quagmire and for the greenback to hold up in the short-term as the currency of choice.

However, the long-term picture for the Singapore dollar against the US dollar looks better as more money finds its way to Singapore from cash-rich nations looking for trading and investment opportunities.

GFT meanwhile reported:

The U.S. dollar rose more than 1 percent against the Japanese Yen but fell significantly against the euro and British pound.

The strength of USD/JPY cannot be ignored. In less than a month, the pair soared nearly 500 pips with only a one day retracement. This rally is sure to have shaken out a lot of shorts to the relief of Japanese officials.

According to the CFTC data, short USD/JPY positions have been cut by more than 40 percent. The simultaneously rally in the EUR/USD and USD/JPY indicates that risk appetite is behind the moves. The markets have been flushed with liquidity by central banks around the world and the prospect of additional cheap money from the ECB next (this) week has compounded the rallies.

Although there is significantly more U.S. economic releases in the coming (this) week, the focus will remain on Europe. This is not to say that U.S. data is not important but with the Fed planning to keep rates unchanged until 2014, incoming economic data won’t have much impact on near term monetary policy.

RBS, on the other hand, noted:

The EUR continued to squeeze higher to close out the (last) week, climbing to as high as 1.3487 vs. the USD even as growth oriented currencies AUD, NZD, and CAD fell against the USD.

CFTC positioning data for the week ended Tuesday showed that speculators pared back their net short EUR position only slightly, to -142K contracts from previous -148K contracts. The position remains extreme on a historical basis, but note that the data does not include the squeeze higher over the past few days (EUR closed Tuesday 21 Feb at 1.3234, currently 1.3462).

Speculators still hold an overall hold a net-long JPY position of +17K contracts despite the recent weakness in the JPY, though investors on the IMM held a near-record long position of +50-60K contracts during January and into early February 2012, so the position has come down sharply in the past few weeks.

Finally, CHF net short exposure fell to -19.8K contracts in the week ended 21 February, the most extreme short position since September 2007.