The Australian Dollar is trading lower on the day as US-China tensions over Hong Kong escalated on Wednesday with threats and counter threats on both sides. The US President Donald Trump has promised to take decisive action against China this week over the new National Security Law proposed by China, a decision by Beijing that has sparked off a new round of protests in the region.
But Beijing is not taking the threats lightly. Yesterday, President Xi Jinping promised to increase the combat readiness of the Chinese military, and China is promising a retaliation to any US action.
Worsening diplomatic relations between the US and China is a worrying prospect for the Australian economy and its currency, which are directly exposed to China’s economy and its politics. Australia is China’s largest trade partner in the Pacific realm. The Australian Dollar has reacted negatively to the news, reversing a 3-month upward push against the Swiss Franc on a bearish day of trading this Wednesday. The latest developments have brought on demand for safe-haven assets and is causing the Swiss Franc to gain on the Aussie Dollar on a day when comments by SNB Chief Jordan had provoked CHF weakness elsewhere.
The AUDCHF is trading at 0.63794 or 0.67% lower on the day.
Download our Q2 Market Global Market Outlook
Technical Outlook for AUDCHF
The daily candles for Tuesday and Wednesday on the pair seem to be forming a dark cloud cover candlestick pattern. Furthermore, trendline traces over recent highs and lows indicate that the price action is forming a rising wedge pattern: one that has future bearish implications on the pair.
Today’s bearish price action is a rejection from the upper border of the wedge pattern as well as a rejection from the failed break of the resistance at 0.64347. Price now pushes towards 0.63481. A breakdown of this support line as well as the lower wedge border opens the door towards 0.62182, with 0.59455 and 0.58329 standing by to assume a spot as potential support targets if price decline continues on risk-off sentiment.
On the flip side, risk-on sentiment from a de-escalation of tensions is bullish for the AUD, and could allow it to carry the pair above the 0.64347 resistance. A breakout above this level sends the pair above the wedge’s upper border, thus invalidating the pattern. This allows the pair set its eyes on the 0.65992 and 0.66555 resistance targets.
Interested in 1-on-1 coaching? Get in touch with the team here.