COVID-19 Strains US/China Relations
Fears that tensions between the US and China could soon boil over has increased this week as the two sides continue to trade rhetoric over the Hong-Kong standoff. Relations between the world’s two leading economies have been particularly fraught over recent weeks amidst escalating US criticism of China over its alleged role in the COVID-19 virus outbreak, which include Trump claiming to have seen evidence that the virus was man-made in China. China has consistently rebuffed these claims while Trump has threatened various action such as cancelling the current trade pact and applying fresh tariffs or hitting China with up to $ 1 trillion in financial penalties. China, however, has said that it will not be paying any such penalties and has urged the US to cooperate in the fight against the virus.
Hong Kong Standoff Emerges
Over the last week, however, tensions have increased further over China’s plans to introduce a New National Security Legislation in Hong Kong prohibiting “splittism, subversion, terrorism, any behaviour that gravely threatens national security and foreign interference”. There are fears that the legislation (which is purposefully vague as those terms have not been defined) will be abused by China to control Hong Kong in an authoritarian manner. If passed, the law will mark the first time that Chinese law has been written into Hong Kong’s penal code and critics argue that such a move is a breach of the mini-institution in place in Hong Kong; The Basic law, which asserts that Hong Kong has the right to introduce its own National Security Legislation.
The US has been highly opposed to such a move by China arguing that Hong Kong’s status as an autonomous financial hub. Commenting on the situation this week, Larry Kudlow, the white-house adviser said “China is making a big mistake” and called China’s actions “very disturbing”. China has previously warned the US not to interfere in its hadbnling of Hong Kong following previous US warnings to China over its handling of protesters there.
Trump to Announc Measures
Trump has warned over recent days that the US could be forced to take action if China presses ahead with its plans and, speaking yesterday, confirmed that the administration has decided on a course of action to take. Speaking at a White House press conference Trump said “We’re doing something now. I think you’ll find it very interesting … I’ll be talking about it over the next couple of days.” However, he wold not be drawn on what this response would be and when asked if it would include sanctions, replied: “No, it’s something you’re going to be hearing about … before the end of the week, very powerfully, I think.”
USDHKD (Bearish below 7.7640)
From a technical viewpoint. USDHKD continues to hold in a consolidation pattern just above the long term 7.4867 level support which is a major, long term level for the pair. For now, price is holding around the monthly pivot at 7.7527 with VWAP still negative, keeping the short-term bias bearish. Bulls will need to see price above the 7.7640 level to alleviate downside bias.
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