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The HKMA upsized its intervention, and bought HKD17.6bn (USD2.2bn) over the past 24 hours, with total volume touching HKD51.3bn (USD6.5bn).
USDHKD, however, has been hovering around 7.8495, still quite close to its upper limit at 7.85.
This morning the HKMA said that it expects the HIBOR to rise incrementally, and they didn’t see large scale of shorting HKD positions.
On daily plotting of USDHKD, we spotted out whipsaws after major uptrend with a sharp hanging man pattern which is bearish in nature (see oval-shaped area). Well, this bearish pattern is coupled with RSI and stochastic curves boiling up with overbought pressures signals extreme weakness.
Whereas on the intermediate trend (refer weekly plotting), a potential hanging man is traced with one day to spare. Nevertheless, we cannot afford to isolate the signal as there is no substantiation from both leading as well as lagging indicators. Hence, contemplating the major uptrend, it is unwise to buck the trend.
Consequently, with a view to arresting potential downside risks of USDHK, we advocate buying 1m -0.49 delta puts as shown in the diagram. Compared to short selling the underlying spot FX, it is more convenient to bet against the spot FX by purchasing put options as the investor does not have to borrow the underlying outrights.
Additionally, the risk is capped to the premium paid for the put options, as opposed to unlimited risk when short selling the underlying outright.
However, put options have a limited lifespan. If the underlying spot FX price does not move below the strike price before the option expiration date, the put option will expire worthless.
Currency Strength Index: FxWirePro's hourly USD spot index was at 77 (bullish) while articulating at 14:09 GMT. For more details on the index, please refer below weblink:
http://www.fxwirepro.com/currencyindex
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