Bearish USDHKD, bullish the Hong Kong Dollar
I am a Hong Kong Dollar bull on a long time line and I believe that the Hong Kong Dollar is better off pegged to the RMB for stability than the US Dollar. If you are interested why I hold this view, this is a page where I put down some of my views as well as excerpts and links to other posts on this topic.
Important things to note:
- This is not a trade idea that you can do on a leveraged account.
- It is a really long term view and depends on developments on many fronts including the direction of the US Dollar, the Chinese Renminbi, trade flows and what the Chief Executive of the Hong Kong Monetary Authority thinks.
- One needs a lot of patience. May be it is the wrong idea, may be it is wrong timing but our first post on this topic goes back to 2012 which says a lot.
My idea is very simple: if I am right at all, USDHKD goes permanently below 7.75.
LERS No Go Zone
What is LERS? It is short for Linked Exchange Rate System which is Hong Kong’s currency peg to the USD Dollar between 7.75 – 7.85 since 1983. HKMA intervenes regularly by buying USD and selling HKD regularly to keep the currency pair away from the limits of this rate system. Here is an old chart that will help you visualise.
As can be seen from the green zone, there has been a lot of price pressure on 7.75. This is the lower limit of the currency pair but is actually the high limit for Hong Kong Dollar. In other words, there is pressure on the HKD to appreciate.
In my opinion, such pressures can last a long time but not indefinitely. At some point in time, the market gets its way. We saw that during the Asian Financial Crisis where any Asian currencies were forced to depreciate and we saw that kind of action most recently with the Russian Ruble and then disastrously with the Swiss Franc after the Swiss National Bank abandoned its Minimum Exchange Rate of 1.20 for the EURCHF.
HKD bulls like me are waiting for HKMA to fold.
Hong Kong Dollar bulls in control
This may be a sign maybe not but USDHKD took at big step yesterday with the deepest penetration so far. Amazingly on the monthly chart, you can see also USDHKD hugging 7.75 and then that big shooting star which tells me HKD bulls are in control.
If you have patience like me, watch closely.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.