Following a spate of HKD strength over....>

HONG KONG: Following a spate of HKD strength over the past fortnight as HIBOR

fixings spiked to multi-year highs, prompting a funding squeeze and underpinning

the HKD. This pressure eased Thursday, with overnight HIBOR slipping to

three-month lows of 1.78%. Markets responded with a minor recovery in USD/HKD,

which inched back toward the 7.8150 level.

-USD/HKD's recovery from the 7.8025 lows last week has been mirrored in options

space, with a significant bias toward USD/HKD call options so far Thursday. In

the late Asia/early European session, over $1bln in 7.81/7.85 one-year call

spreads traded, a structure that would break even on a move north of 7.8170.

This followed a slightly more bullish USD/HKD trade earlier in the day, with

$1bln in 7.8500/7.7885 call spread rolling off in early April 2020.

-The USD/HKD implied vol structure remains elevated - particularly in the

short-term tenors, with the fractured US/China tensions and increased scrutiny

of HKMA FX controls supporting.