Home AUD/USD: Bears on the verge of a new chapter on the longer term time frames; Trade wars about to get worse
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AUD/USD: Bears on the verge of a new chapter on the longer term time frames; Trade wars about to get worse

  • AUD/USD bulls are running on empty with a lack of fresh stimulus on a domestic front to counter the continued preference from investors to be long of the greenback.  
  • AUD/USD met supply at the descending resistance line est o the 19th Oct and again at the heights of Asia’s trade overnight at 0.7105.  
  • USD/CNH rallies to score fresh short-term highs on the 6.95 handle within rising wedge (bearish) formation.  
  • Not much hope for Xi/Trump summit  

AUD/USD is resuming its downtrend within the end of the Jan bear channel with no sign of exhaustion. In the absence of any domestic cues this week for the Aussie, we can run with all of the pro-dollar news stories and expect a further deterioration in price.

The dollar has already been on a tear through the 96 handle as promising ISM data lifted spirits further surrounding the strength of the US economy. Both services and manufacturing were solid, beating expectations and priors by some distance and in stark contrast to the eurozone’s by comparison – (The Aussie and euro are in some ways correlated with their close ties to China and EMs).  

China’s economy set to deteriorate further as both Xi and Trump remain stubbornly silent on trade war compromises

China has experienced the slowest growth this quarter in almost a decade and trade wars are a factor that China’s economic power is suffering from. Many are holding out for when Xi might meet with US President Donald Trump at the G20 Summit in November in Buenos Aires, Argentina, expecting some form of peaceful engagement over trade talks that might bring a solution to the saga. However, neither of these leaders wish to bow down to the other; Trump has the midterms coming up and Xi also wishes to look strong as leader of the world’s second-largest economy.  

Pence recently raised the stakes, blasting the Chinese government and hinting at the potential of war when he appeared at the Hudson Institute earlier this month and made a speech.

According to White House transcripts, Pence is quoted as saying that:

“Beijing is also using its power like never before. Chinese ships routinely patrol around the Senkaku Islands, which are administered by Japan.  And while China’s leader stood in the Rose Garden at the White House in 2015 and said that his country had, and I quote, “no intention to militarise” the South China Sea, today, Beijing has deployed advanced anti-ship and anti-air missiles atop an archipelago of military bases constructed on artificial islands.”

Those do not sound like words of peace from a potential President if Trump were to be impeached if the Democrats end up with control of Congress after this year’s midterms.  In any case, President Xi does not need to surrender at this stage and will likely allow the economy to continue to suffer in the near term given that the Chinese have the upper hand – The Chinese have a massive trade surplus with the US while the US trade deficit with China is on track to increase further this year despite the tariffs.  

All in all, the Aussie depends on China’s economic performance and commodities play a big role in the price action in the Aussie. As China’s economy falters, commodity prices are set to weaken and the US dollar would remain in demand. EMs depend on lower borrowing costs in the dollar and all of these factors will weigh on the Aussie. then, when considering the RBA, the  divergence between the Fed will also underpin the offer in AUD/USD. fundamentals aside, if even one were to just go with the technicals, the balance there is also in the bear’s favour and we are embarking on a critical support area on the charts, that if broken, opens a new bearish chapter on the longer term time frames.  

AUD/USD levels

We now have a bearish candle that trumps yesterday’s long bullish downside wick prior day’s candle and an engulfing close will certainly leave sell stops clustered exposed between 0.7050 and 0.7030. To the downside, 0.6995/75 comes ahead of 0.6827 as the 2016 low. On a flip to the upside, 0.7150/60 and the 2018 downtrend line along with the daily cloud base sitting at around 0.72 the figure come next. The wider critical resistance in the 0.7310/15 zone – Bulls could then look to target September’s high.

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