USD/HKD eyes multi-year lows ahead of Hong Kong trade balance report

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Hong Kong Dollar (HKD) appreciated against the greenback on Monday ahead of some major economic releases. USD/HKD has formed a classic double top pattern on the daily chart, exposing fresh multi-year lows.

Technical Analysis

The pair is being traded around 7.7574 at 12:00 GMT in London. Resistance may be noted near 7.7668, the high of the previous week, ahead of 7.7674, the swing high of the previous wave. A break and daily closing above the channel resistance could push USD/HKD into renewed bullish momentum, opening doors for the 8.0000 milestone.

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On the downside, USD/HKD is expected to find support around the lower trendline (currently at 7.7550) and then the neckline of the double top pattern which is sitting in around 7.7538. A daily closing below the neckline will confirm the daily double top pattern, exposing the 7.7400 handle in long term.

Hong Kong Balance of Trade

On Tuesday, March 25, Hong Kong government will release the balance of trade report for the previous month. According to the median projection of different analysts, the trade deficit increased to 43.6 billion HKD last month as compared to 19.98 HKD in the month before. Generally speaking, high deficit is considered negative for an economy, thus a worse than expected trade balance figure will be considered bullish for USD/HKD and vice versa.

US Durable Goods

On Wednesday, March 26, the US Census Bureau is due to release the durable goods data for the previous month. Manufacturers in the US received 1.1% more durable goods orders in February as compared to 1.0% decline in the month before, the average forecast of different analysts says. Generally, high durable goods orders are considered positive for an economy and vice versa.

Long Term Trend in USD

After the recent tapering decision by the Federal Reserve and unprecedented hawkish remarks from the Fed chair Janet Yellen, the long term bias for the US Dollar has turned into bullish. Many analysts believe that the US central bank will continue to reduce the stimulus by $10 billion on every forthcoming meeting, hence dropping the entire monthly asset purchase program (currently worth $55 billion) by the end of October this year. According to the Fed chairperson, the central bank might also increase the benchmark interest rate anytime in the next six-month duration. If Fed increases the rate, it will push the dollar towards the pre-recession levels consequently accelerating the downside risk in the emerging-market currencies.

China Slowdown

Today HSBC holdings said its manufacturing indicator for China once again fell more than the forecast. HSBC Manufacturing Purchasing Managers Index (PMI) declined to 48.1 points in March compared with 48.5 points reading in the previous month. A reading below 50 shows contraction in manufacturing activity and vice versa. Since China is one of the biggest trade partners of Hong Kong, so the manufacturing slowdown in the Asian nation might spur bullish trend in USD/HKD.

To contact the writer of this story: Usman Ahmed at usman@forexminute.com