Is that it? USD/HKD was finally looking promising after veering away from the 7.75 floor, but now we’re falling back again after bulls were unable to break the 7.76 resistance. We’ve been witnessing a mostly flat USD/HKD trade since 2012 and early signs from 2013 isn’t look so hot. In previous years, a push from the 7.75 was met with strong bullish follow-through, with high volatility subsequently. However this time round, price actually edged slowly higher and bullish momentum is now threatening to stop altogether.
There are 2 fundamental reasons for HKD’s recent rally: 1) return of appreciation of USD/CNY by PBOC’s guidance. 2) strengthening of the global finance sector which Hong Kong is primarily in. Recently, the Hong Kong Exchange has also announced that they will be starting after-hours futures trading starting on 8th April. This will increase HKD’s interest as trading volume in HKD based assets will certainly increase, potentially resulting in HKD strengthening back towards 7.75.
From the weekly chart, we can see prices bouncing off the Kumo after briefly breaching into it. The Kijuu-Sen (red line) may still provide some support, but bearishness may accelerate should price breaches the line. This scenario fits into the fundamental analysis above, and suggest that trading back to the 7.75 floor may be possible in a few weeks time.
12 Hourly Chart
Technical outlook on 12 Hourly chart is more bearish than the weekly one. A new bearish Kumo Twist has appeared, and price has just broken below the prevailing Kumo, with Stochastic readings forming a recent top. All sign points lower, but price may still yet find some support above 7.753 which was the previous swing low back on 5th Feb.
Not all is lost for the bulls though, as the Fed is looking less and less dovish in 2013. Should the US economy recovers, longer term US yields may increase and will pressure Hong Kong rates to rise as well as the rates are pegged. This will result in lower HKD assets and we could see lower demand of HKD as long-term investors liquidate these assets to seek higher alphas somewhere else.