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AUDUSD off the lows as China tensions grow.

Market Brief

China is starting to react towards adversarial actions from the likes of Australia, Canada, and the USA. It is also being more aggressive towards its neighbor Taiwan with increased military action over Taiwanese airspace. Last night China's National Development and Reform Commission (NDRC) said that it is indefinitely suspending the China-Australia Strategic Economic Dialogue. The NDRC stated its decision was based on "the current attitude of the Australian Commonwealth Government toward China-Australia cooperation."

This follows the Australian displeasure towards China with regards to human rights violations and increasing rhetoric of warmongering. In a recent report from the Australian Department of Foreign affairs and Trade, it said the trade between China and Australia has dropped by 2% overall, but if you were to remove the Australian exports of Iron Ore to China, the drop was more like 44%, with exports of wine, coal, barley being hit the hardest.

The Australian dollar remains elevated as the US dollar is currently relatively low, though the AUDUSD is stuck within a range that has lasted almost a month now, with price rotating around the 0.7750 price level. Bearish sentiment is building with 68% of traders on the ActivTrader platform shorting the currency pair.

China is displeased by the way countries which now include India are shutting their 5G technology out, due to fears the Chinese infrastructure and technology would open up ways for the Chinese authorities to gain access to foreign intelligence and commercial data, via backdoors and trojan horses.

China’s reach is truly global, and they own the likes of Darwin Port in Northern Australia, as well as at least £134billion of UK assets. Investors and businesses based in China now own stakes in UK infrastructure businesses such as Thames Water, Heathrow Airport, and UK Power Networks.

Developing UK tensions nearer to home has meant the Royal Navy is being dispatched to the Channel Islands, as the French are considering cutting off the power supply to the Island of Jersey in protest to limited access to UK waters for French fishing fleets.

Yesterday the DAX was up 2% nearly unwinding Tuesday’s bearish price action. Already this morning Volkswagen has unveiled that its revenue in the first quarter of fiscal 2021 amounted to €62.4 billion, rising 13.2% from the same period a year earlier. Continued success for the German corporations should support the price action for the DAX and the daily chart shows a clear supporting trend line. If this rising trend line were to be breached it would be the early warning indication that sentiment and momentum were changing should price close below it. The last two trading days have resulted in an inside day, so a break to the upside of yesterday’s high could be the start of acceleration towards the recent all-time highs.

The US dollar is still unable to get above the resistance level around $91.30 and I am thinking that a break lower than yesterday’s low print could see the bulls give up and accept lower prices. With good news out of Europe with regards to the likes of Volkswagen, the EURUSD could trade higher today, which would weigh on the US dollar index.

The ActivTrader sentiment readings show that traders are still overly bearish of the EURUSD, so a squeeze against these traders’ positions is growing more likely.

This morning we have the Bank of England's Monetary Policy Committee, giving us their decision on interest rates and asset purchases. The GBPUSD has been trading within a very tight range and with the weakening US dollar, we could again accelerate to the upside if we can print higher highs for the week.