As U.S.-China trade tensions ratchet higher nW1N21U007 AUD/USD is grinding lower on the back of the yuan's fall to two-month lows versus the greenback , but the aussie's price action might be a warning to bears.
AUD/USD has not been able to make a new trend low despite USD/CNH's break above the 200-DMA and 50 Fib of the November-March decline and subsequent new high.
The inability of AUD/USD to break the May 6 low might be attributed to several reasons.
The drop in U.S. Treasury 10-year yields toward the April 1 low and eurodollar EDM0 price rally increase the odds of Fed rate cuts, which is likely keeping investors from loading up on the greenback.
Ironically USD/CNH gains could be keeping AUD/USD bears cautious, with traders worried that USD/CNH gains toward 7.0 could raise the risk of PBOC action to prevent capital outflows from China.
Memories of USD/CNH slide after the last it neared 7.0 remain relatively fresh in traders' memory. In AUD/USD, Large option barriers at 0.6950 and 0.6900 are also helping to temper bears as well.
For now downside risks prevail but if trade tensions ease, AUD/USD shorts will get squeezed hard as risk sentiment recovers.
The 200-DMA and April's 0.7206 high would then be targeted.
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