Maybank FX Tech Flash: GBPSGD - Choppy Waters - 23 April 2015

GBPSGD:  Choppy Waters

GBPSGD made an impressive run notching 5% of gains between Jan-Feb 2015, before erasing all the gains between Feb-Apr 2015. At the same time 1-month implied volatility surged to 3.5-year high of above 11%.         We see GBPSGD cross potentially edging higher over the medium term on firmer GBP. It is due to a combination of factors such as ongoing economic recovery in UK, supported by domestic demand, a resilient labor market, rising real wages and inflation to gradually pick up later this year against a largely stable SGD. Technical is also suggesting a bullish divergence, possibly targeting 2.05 levels.          While we are of the view that GBPSGD cross may edge higher over the medium term, we caution for near term UK election risk that could weigh on the cross. Opinion polls are implying a hung parliament and the resulting impact of the 2010 hung parliament saw a 4% decline in GBPSGD.   In view of the near term risk emanating from election uncertainty and medium term view for a firmer GBP on fundamental drivers, we expect GBPSGD cross to be choppy, trading in a volatile range of 1.95 – 2.05.