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Australian Dollar, ASX 200 Pressure Resistance as Trade Tensions Brew

Australian Dollar, ASX 200 Pressure Resistance as Trade Tensions Brew

2020-05-19 03:00:00
Daniel Dubrovsky, Analyst
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Australian Dollar, ASX 200, Trade War, Coronavirus - Talking Points

  • Australian Dollar and ASX 200 soar on Moderna virus drug trial
  • Trouble brewing in US-China and Australia-China trade relations
  • Aussie index, ASX 200 losing steam as prices pressure resistance

Monday brought with it a broad resurgence in risk appetite that sent stocks on Wall Street to their best daily performance in almost 6 weeks, on average. This momentum made its way into the Australian benchmark stock index, the ASX 200. This also extended to the sentiment-linked Australian Dollar. Hopes for a coronavirus vaccine seemed to be the catalyst as Moderna reported ‘promising results’ in an early clinical trial.

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Rising expectations of a vaccine helped bring forward anticipation of a faster-than-expected recovery in economic growth. Meanwhile Queensland – an Australian state – reported that the government is pushing forward a A$400 million road funding stimulus package. This may cool the need for further easing from the Reserve Bank of Australia, and may have explained why the Australian Dollar saw a cautious boost on the news.

Yet some trouble is brewing in the background that may pose a threat to the ASX 200 and Australian Dollar. US-China tensions have been on the rise, particularly as the White House looks into how the world’s second-largest economy handled the outbreak of the coronavirus. President Donald Trump has hinted that tariff hikes could be a possible punitive step even as US authorities into Chinese companies trading on the NYSE.

In response to Australia’s push for an inquiry into China’s handling of the Covid-19 outbreak, the latter imposed tariffs on barley imports from the former. China is Australia’s largest trading partner, and an escalation that brings back the economic consequences of a trade war could risk denting upside potential from relaxing lockdown measures.

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ASX 200 Technical Outlook

With that in mind, the ASX 200 finds itself pressuring key resistance, which seems to be a range between 5489 to 5563. This area has kept price gains at bay since consolidation began in late April. Positive RSI divergence warns that upside momentum is fading, which could precede a turn lower. That would place the focus on swing low support at 5301, a barrier bolstered by rising trend lines from late March – see chart below. Extending gains exposes the midpoint of the Fibonacci retracement at 5799.

ASX 200 4-Hour Chart

Australian Dollar, ASX 200 Pressure Resistance as Trade Tensions Brew

Chart Created in TradingView

Australian Dollar Technical Outlook

My majors-based Australian Dollar index – which averages the currency against USD, EUR, GBP and JPY – is also pressuring key resistance which has its inception from late April on the 4-hour chart below. Negative RSI divergence is present here as well, which could precede a turn lower. That may place the focus on rising support from early April – red lines. Otherwise, uptrend resumption may see the Australian Dollar approach its highest average price since February. Falling resistance from 2017 could maintain the dominant downtrend.

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Majors-Based Australian Dollar Index (4-Hour Chart)

Australian Dollar, ASX 200 Pressure Resistance as Trade Tensions Brew

AUD Index Created in TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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