Fundamental -Running contrary to the technical view, a thin economic schedule is likely to add to theHong Kong dollar woes with the sole report being a snapshot of the regions foreign currency reserves. Here, a higher figure than the previous $127.4 billion would purport the notion of tightening by monetary authorities as it requires banks to hold more in foreign reserves....<See below for full story>
Technicals
The USDHKD recently made a triple top at the 7.7800 figure. This is an important point of reference and prices below keep the bias bearish. A break above targets monthly pivots of 7.7817, 7.7860 and 7.7904. Daily momentum is certainly waning as RSI shows bearish divergence at recent highs (7.7800 on 3 occasions). A dip below the 8/18 low at 7.7713 encounters the 8/21 38.2% fibo of 7.7510-7.7800 at 7.7690.
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Despite rather disappointing US dollar data, the Hong Kong dollar lost some ground during the week with traders taking the emerging market pair off of the 7.7770 intermediate support level and higher through 7.7780. Now in the midst of a textbook head and shoulders formation, the pair looks technically overbought, lending to a downside move. However, at this point, confirmation must be obtained through a break of the neckline at previous 7.7770 support. Running contrary to the technical view, a thin economic schedule is likely to add to the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Hong Kong dollar woes with the sole report being a snapshot of the regions foreign currency reserves. Here, a higher figure than the previous $127.4 billion would purport the notion of tightening by monetary authorities as it requires banks to hold more in foreign reserves. The move would essentially be in attempts to curb investment and speculation in the region as well as loans or investments by banks which would increase the flow of capital. Increasing little by little for most of 2006, the market will be especially focused on further increases in the amount of reserves held by institutions.
Separately, the economic front didnt help the currency that much during the week even as reports were comparably positive in the Asian economy. Preceding a slower money supply picture, traders were privy to the external trade balance for the month of July. Improving to a $5.2 billion shortfall, the July figure comparably narrowed against the $13.8 billion widening seen in June. With the economys growth very closely tied external trade and tourism, the narrowed balance bodes well for the region, underpinning the 5.2 percent growth rate currently seen for the country. The notion is additionally encouraging as money supply is well suggestive of moderate inflationary pressures. For the month of July, money supply grew less than the pace seen in June rising only 12.5 percent on the M2 supply level. However, comparably, the more convertible M1 level actually rose, increasing to a decline of 1.9 percent compared to a negative 2.1 percent seen in the month of June. Additionally positive signs were also seen later in the week as manufacturing and retail sales figures purported a continuation of optimism. Although dipping to a 51.6 reading on the PMI, the Hong Kong Purchasing Managers Index for August was only slightly lower than the 51.8 print seen in July. Taken as a suggestion of contraction, several upticks in output and new business volumes components reveal more stabilization than an overall slowdown. The notion was confirmed following retail sales figures that dominated over the consensus estimate. Rising by 7.1 percent, the value of retail sales jumped over the 5.2 percent consensus as tourism boosted the sale of domestic goods with local consumer sentiment additionally lending a hand.
Economic Releases for September 4 September 8
| Date | Event | GMT | EST | Consensus | Previous |
| 9/7 | Foreign Currency Reserves (AUG) | 9:00 | 5:00 | -- | $127.4B |
USDHKD The USDHKD recently made a triple top at the 7.7800 figure. This is an important point of reference and prices below keep the bias bearish. A break above targets monthly pivots of 7.7817, 7.7860 and 7.7904. Daily momentum is certainly waning as RSI shows bearish divergence at recent highs (7.7800 on 3 occasions). A dip below the 8/18 low at 7.7713 encounters the 8/21 38.2% fibo of 7.7510-7.7800 at 7.7690.
