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 (see 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.

Well, overall the dollar also remained largely cushioned by rising U.S. government bond yields and the dollar gaining traction towards (below 1.05 during Q1’2017) on account of three fundamental factors.

Firstly, worries that the OPEC-inspired higher oil price will generate additional US inflation and hence further Fed hikes, Secondly, the hopes of ramped up fiscal stimulus once Donald Trump becomes president, lastly, favorable economic data flashes.

As a result, we’re now seeing turbulence in euro’s OTC markets, the implied volatility of ATM contracts for 1w and near month expiries of EURUSD are spiking sky-rocketed at around 17.75% and 10.85% respectively which is the highest among G7 currency space.

While delta risk reversals flashing up negative numbers that signify the long-term robust bearish sentiments.

Tracking EUR to parity In Q1’17, we expect the EURUSD to break through the technical support at 1.05 and to reach parity (Trumped up changes). We previously provided trade recommendations for a significantly lower EURUSD.