Hong Kong Dollar Currency Derailing City Stocks – Investors Panic

Hong Kong Dollar Currency Derailing City Stocks – Investors Panic

The currency moving out of the HK$7.755 to HK$7.77 range that it spent most of 2016 within is unnerving investors.

The Federal Reserve is playing havoc with the Hong Kong dollar — and the stock market could be next.
The Hong Kong dollar is within 0.2 percent of HK$7.80 per U.S. dollar, a level that could trigger outflows from the stock market, according to Ample Capital Ltd. and Core-Pacific Yamaichi. Their theory? Traders start ditching rate-sensitive equities on concern the weakness will spur officials to start buying the currency to shore up the peg, thereby boosting borrowing costs.

  • Hong Kong dollar weakness is caused by the dollar’s gains on the back of tightening monetary policy and improvement in U.S. economic fundamentals, Li said. That retreat may be tempered after the Fed hikes rates again.
  • There’s unlikely to be a panic in equity markets
  • Inflows of capital from China are helping buoy liquidity in Hong Kong, which is keeping a lid on rates
  • Weakness could spur intervention, which buoys borrowing costs
  • Drop to HK$7.80 likely to trigger stock losses: Ample Capital
  • There’s not enough loan demand in Hong Kong to provide support for the currency
  • The Hong Kong dollar may weaken to HK$7.80 some time before mid-June if the interest rate differential widens to 1 percent

 

Overall, the bias in prices is: Sideways.

Short term: Prices are stalling.

Intermediate term: Prices are ranging.

The projected upper bound is: 7.80.

The projected lower bound is: 7.79.

The projected closing price is: 7.79.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 37 white candles and 12 black candles for a net of 25 white candles.

Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 88.6348. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 3 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 65.60. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 8 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 95. This is not a topping or bottoming area. The last signal was a sell 7 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 5 period(s) ago.

Rex Takasugi – TD Profile

FOREX HKD= closed up 0.002 at 7.791. Volume was 25% above average (neutral) and Bollinger Bands were 65% wider than normal.

Open     High     Low      Close    Volume
7.78       9.792     7.786    7.791   9,023

Technical Outlook
Short Term:                Neutral
Intermediate Term:  Bullish
Long Term:                 Bullish

Moving Averages: 10-period     50-period     200-period
Close:                       7.79               7.78                7.76
Volatility:                1                     0                     0
Volume:                  8,897             7,442              7,113

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary
FOREX HKD= is currently 0.4% above its 200-period moving average and is in an upward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of HKD= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on HKD= and have had this outlook for the last 80 periods.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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