Roughly a month ago, the Philippine Peso together with many other currencies were trading strongly against the US dollar. If you look at the dollar-to-peso chart (USD/PHP), the peso even reached a high of P41.991 versus the greenback last November 4 and I mentioned this possibility in my previous analysis (kindly check this). However, the P42.00 marker proved to be resilient, at least at that time, as the dollar rebounded off of it. At present, the Philippine Peso is trading back at around P43.70. Several technical factors, though, indicate that the dollar’s rally could be over and the peso could appreciate once more. As mentioned, the peso is exchanging at around the P43.70 level which used to be a former support. A support, as we know is a level where traders buy the currency. But after breaking through that level, that level’s role could flip from a support to a resistance. Noticeably, the dollar has been unable to rally above it for the last couple of days. Coincidentally, this level also magically corresponds to the 38.2% Fibonacci retracement level that I drew. A hidden bearish divergence, where the price registers lower lows and the stochastic oscillator marks higher highs, is also evident (for those who are newbies, these concepts might be a little off the roof but we at LaidTrades will soon include these in our wikipedia and lessons portion but we will work on the chart patterns first). And with conditions in the overbought territory as indicated in the stochastics, traders could soon pick up the peso in exchange of the dollar.
One main factor that is affecting the Peso exchange rate is the level of remittance (dollars) from abroad that is sent back to the country. For those who do not know, about 11% of the country’s gross domestic product or simply total output comes from the money sent home by overseas Filipino workers (OFWs). In 2009, remittances went up by 5.4 % to a new historical of $17.348 billion from $16.426 billion in 2008. For 2010, remittances are even seen to reach $21.3 billion, reflecting a 23% jump from last year. Now it is very likely that the dollar inflows for the year would hit or even exceed that target. Remember, Christmas is very much celebrated in the Philippines since more than 90% of its population are Catholic. Christmas shopping and giving gifts to family and friends have always been an indelible part of Filipinos’ culture. Having said that, remittances from abroad will surely soar during the holiday season because of this. As you know, the more money we receive, the more we can spend. More money spent would then benefit the individual businesses and the whole economy in general which would likewise reflect on the currency (peso). Moreover, improved consumer sentiment during this season would lead investors towards the higher yielding assets and away from the USD. Such would also indirectly benefit the peso exchange rate.