SGD: USD/SGD - Continues To Consolidate On A 1.29 Handle

A few highlights from the Fed's latest Financial Stability report out today (link):

• In terms of asset valuations, "Prices remained high relative to their historical relationship with fundamentals across a range of markets."
• The report highlights high leverage in the financial sector: "Vulnerabilities associated with financial leverage remained notable. Over the past few years, hedge funds’ leverage has steadily increased across a broad range of strategies, including those involving Treasury securities, interest rate derivatives, and equities"
• However "Vulnerabilities from business and household debt remained moderate" and "The banking sector remained sound and resilient overall, and most banks continued to report capital levels well above regulatory requirements."
• In terms of future risks, "A further increase in term premiums leading to higher-than-anticipated long-term interest rates, particularly if accompanied by
  persistent inflation, could pose risks for both borrowers and lenders"
• And the Fed has its eye on "opaque off-balance-sheet funding arrangements" re the recent voliatility caused by First Brands and Tricolor: "The recent bankruptcies of two privately held firms, an auto parts supplier and a subprime auto lender, so far appear to be isolated events. However, these examples highlight that unexpected losses could arise from opaque off-balance-sheet funding arrangements that may be used by certain privately held firms."

Fed Gov Miran makes yet another argument in favor of his position that policy rates should move down substantially, saying that stablecoin adoption could also weigh on "r-star". Recall in a speech in September he made a rough estimate of nominal r-star for the Fed funds rate of between 2-2.5%, well below current rates.

• Miran says: "My thesis is that stablecoins are already increasing demand for U.S. Treasury bills and other dollar-denominated liquid assets by purchasers outside the Unted States and that this demand will continue growing. All else equal, this new demand lowers borrowing costs for the U.S. government. However, as a central banker, my focus is on what I believe may be a substantial and long-term force putting downward pressure on a crucial guideline for monetary policymakers known as r*."
• "I believe a range of different factors are putting downward pressure on r* and should be considered in formulating monetary policy. Some researchers have tried to estimate how much stablecoin growth might lower interest rates. In 2024, work by Marina Azzimonti and Vincenzo Quadrini estimated that if stablecoins are in widespread use and fully backed by U.S. securities, it could put as much as 40 basis points of downward pressure on interest rates."
• Added to his table below from September's speech, that suggests he may see further downside risks to r-star from his previous estimate - though he's already the most dovish member of the FOMC in terms of current rate-setting.

• RES 4: 1.4274 High Apr 9  
• RES 3: 1.4200 Round number resistance
• RES 2: 1.4167 50.0% retracement of the Feb 3 - Jun 16 bear leg
• RES 1: 1.4143 Channel top drawn from Jul 23 low 
• PRICE: 1.4071 @ 16:28 GMT Nov 7
• SUP 1: 1.4019 20-day EMA 
• SUP 2: 1.3948 50-day EMA 
• SUP 3: 1.3888 Low Oct 29 and a key support  
• SUP 4: 1.3867 Bull channel base drawn from the Jul 23 low

Today’s move lower in USDCAD highlights a potential bearish development and a possible reversal of the recent bull cycle. This week’s gains have stalled at the top of a bull channel, currently at 1.4143. The bull channel is drawn from the Jul 23 low. A deeper retracement would expose support at 1.4019, the 20-day EMA. The 50-day EMA lies at 1.3948. For bulls, a break of the channel top would confirm a resumption of the uptrend.