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  • USD/CNH pops and dents the bullish case for AUD/USD.
  • AUD/USD drops back from the 0.73 handle and key 2018 resistance line in a flash.

AUD/USD has slipped in the open on geopolitical angst and a pop in USD/CNH. Currently, the Aussie trades at 0.7267, down from 0.7090’s close and it made a low of 0.7254. China has rejected to re-enter  trade  talks, and as the Finacial Times has reported, ‘sino-US  tensions escalated sharply at the weekend as China declined an invitation to explore further trade talks and summoned Washington’s ambassador to Beijing to protest over sanctions imposed on a Chinese military officer.’

AUD/USD has been testing the 0.73 key level but is pulling back aggressively at the start of the week raising prospects of further deterioration should the yuan continue to slide. USD/CNH has been making a firm bottom with a series of 4hr longer downside shadows on the candles that have accumulated around a familiar 4hr 200&100-SMAs with the support between 6.8240/8960.  

6.8500/20 was a key upside near-term level that has given way with 6.8660 on the cards. AUD/USD, as a proxy to what goes down in China town, may find it difficult near on impossible to recover with any conviction amidst such heightened risks –    China announced on Saturday that it was pulling out of the trade talks scheduled with the US this week. The move was well-signalled and unsurprising after two earlier rounds were unproductive – USD200bn of tariffs kick off today in the US and USD110bn in China, and at this stage, it’s not clear what will halt the escalation,” analysts at  ANZ Bank New Zealand Limited (ANZ), also explained.    

The week ahead will hold the FOMC

The week ahead will hold the FOMC and US GDP Q2 third estimates. However, analysts at Nomura explained that recent FOMC minutes and participant comments all point to another step in removing accommodative policy – “On policy rate expectations in Summary of Economic Projections, we do not expect any changes to the FOMC’s median policy rate forecasts at the September meeting.”

Meanwhile, analysts at TD Securities explained also, that, on net, they see a  dovish reaction  as the Fed leaves the 19/20 dots unchanged, reveals the 2021 dots with the same median as 2020, and Clarida’s new dot nudges the long-term lower – “Some hawkish balance should come from a few 2018 dots shifting higher to firm up a Dec hike, while ‘accomodative‘ should remain in the statement, with the latter a  closer  call for a more dovish tweak.”

AUD/USD levels

Bulls were teed up for a break of the 0.73 handle and 2018 resistance trend line where a further squeeze would have targetted 0.7360/80 levels that guard  the 0.7455/65 zones. However, the 0.7250/40 zone is key. This is made up of the confluence of 23.6% fib recent uptrend retracement, 15th 16th Aug consolidative highs/lows, 23rd Aug spinning top reversal, 19th Sep support, 200-4hr SMA, daily S2, weekly 38.2% fib. A break here opens 0.7221 38.2% fib of same uptrend (21-D SMA) and 0.7200 (10-DMA)/70 stop territory, targeting 0.7140.