• Risk off situation
  • Strong US Dollar
  • U.S – China tensions
  • Australia – China tensions
labelPositionEntry priceStop LossTake Profit
AUD/USDSell0.649900.656500.64090

On Friday, Australia, along with canada and uk issued a joint statement expressing their concern about China’s proposals for legislation on national security in Hong Kong.

The joint statement emphasized “a high degree of autonomy” for Hong Kong as agreed by China and the UK when China took back the former British colony in 1997.

The Chinese Embassy in Canada on Saturday expressed “strong opposition” against the joint statement and UK, Australia and Canada’s “gross interference” of Chinese domestic affairs.

This may add more pressure on Australia- china trade tensions, and we probably may see more restrictions from china on some of Australian exports.

the United States is to issue a report as early as next week, which if Hong Kong’s autonomy is not affirmed and could lose its trade privileges with the US.  Hong Kong is not yet subject to the tariffs applied on china. 

In addition, The US is taking measures that may lead to many Chinese stocks losing their listings in the US.  According to Bloomberg, without the 140 listings, which account for $383 billion in market capitalization, the NASDAQ would go from being up 5% to being down almost 7%. 

Regarding those circumstances we expect a decline in AUD/USD.

As we see in the daily chart below, the AUD/USD has made a false upward breakout from the upward triangle and retraces back the next day.  

the us dollar index has been strong for a long period of time and is still trading above the 26 weeks moving average.

On the daily chart, the dxy is ranging around 100.00 within a symmetrical triangle.

If we take a look at the Chinese Yuan Renminbi, we notice that it is trading near historical highs at 7.1527.

A higher USD/CNH is a proxy for the US china trade tensions, it is looked at by professionals to figure out the degree of tensions between the United States and China as the latter devalues its currency to fight the U.S tariffs.

Trading setups:

Technical Conditions:

A break below 0.65000
Rsi 21 breaks below 50

when those technical conditions take place, we observe a great chance that the AUD/USD may fall lower for a good short selling opportunity.

A likely entry price would be set at 0.6499, with an initial target at 0.64090 and a stop loss at 0.65650.

this trading idea is with a risk/ reward ratio of 1.5%.