Can't save into HypeScratch folder

I run into a “couldn’t be saved” error lately when updating an image outside Hype when Hype tries to update it I get:

Thinking it was an permission issue I made sure the disk and folder the original Hype file is in has proper read/write permissions. It fixed it once but now it’s back. Where does Hype store this ‘HypeScratch’ folder?