- Summary:
- The Hong Kong government announced that it would give away more than $1,200 to 7 million people to stimulate growth. But why didn't USDHKD trade lower?
Yesterday, Hong Kong Financial Secretary Paul Chan surprised markets and the public when he announced the government’s bold plans to stimulate growth. The city-state has been embattled by problems that pushed its economy into a recession in 2019, namely the anti-China protests and now, the coronavirus outbreak. The news should have been bullish for the Hong Kong dollar, however, USDHKD traded to its 9-week highs following the announcement.
The highlight of the government’s fiscal stimulus program is giving out 10,000 HKD (roughly equal to 1,285 USD) to permanent residents at the age of 18 or older. It is estimated that 7 million people will receive the one-time cash handout which amounts to roughly 4% of Hong Kong’s 2018 GDP.
Chan also announced that the move will set Hong Kong’s budget deficit at a record of 139.1 billion HKD in the 2020 fiscal year. However, with the coronavirus estimated to push the economy into contraction, the government under Carrie Lam is desperate to stimulate growth. According to Chan, the goal of the program is “”supporting enterprises, safeguarding jobs, stimulating the economy and relieving people’s burden, so as to help Hong Kong tide over the difficulties.”
But why did USDHKD trade higher, not lower? The application for cash payments is not expected to begin until mid-March and there are speculations that the handouts may take months. Some analysts are also skeptical about the effectiveness of the program. It has been pointed out that cash handouts will not keep Hong Kong residents from saving the money or sending it abroad.
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USDHKD Outlook
On the 4-hour time frame, we can see that USDHKD has broken out of its bullish pennant. In forex trading, this is often interpreted as a sign that there may be enough buyers in the market to push prices higher.
By zooming out to the daily time frame, we can see that near-term resistance on USDHKD is around the 7.8000 psychological handle. This price presents a confluence of resistance with the falling trend line (from connecting the highs of October 16, October 30, and December 6), 100 SMA, and 61.8% Fib level (drawing the Fibonacci retracement tool from the high of November 25 to the low of February 7).
On the other hand, if buyers are not able to sustain the rally on USDHKD, the currency pair could recoup its gains. It could fall to support around 7.7850.