USDCNH Falls As US/China Tensions Rise

Trading Tips

Fresh Sanctions Coming?

Tensions between the US and China are at risk of boiling over once again this week as President Trump reportedly prepares to announce fresh sanctions against China. Speaking with reporters this week, White House chief of staff Mark Meadows said: “We’ve got a number of executive orders. We’re looking at how we make sure that China is addressed, how we bring manufacturing back from overseas to make sure the American worker is supported. We’re also going to look at a number of issues as it relates to immigration, we’re going to look at a number of issues as it relates to prescription drug prices — and we’re going to get them done when Congress couldn’t get them done.”

Meadows’ comments come amidst reports citing US secretary of state Mike Pompeo as saying that Trump is considering banning the use of the TikTok app (made in China) in the USA along with another 60 such Chinese apps. The issue of US cybersecurity being under threat from Chinese firms has been a key item of discussion in recent years. Pompeo told reporters: “We have worked on this very issue for a long time, whether it’s the problem of having Huawei technology in your infrastructure — we’ve gone all over the world and we are making real progress getting that out — we had declared ZTE a danger to American national security.

While Pompeo was keen not to delve into any details ahead of Trump making an official announcement, when questioned regarding the prospect of TikTok being banned, Pompeo confirmed that it “is something we are looking at”.

India Bans TikTok

India last week confirmed that it has banned the app over fears of security breaches with an official government statement saying: “The apps are prejudicial to sovereignty and integrity of India, defence of India, security of state and public order”.

In June, Forbes published an article claiming that Apple had identified the app as illegally spying on millions of users, having been caught just months earlier in April.

Trump To Take Action?

Trump has been threatening sanctions against China for some time now over its alleged role in the COVID-19 outbreak and over what Trump claims was the neglectful way in which it managed the crisis, accusing China of exacerbating the outbreak intentionally. In recent weeks, other issues such as the continued militarisation of the South China Sea and the National Security Law in Hong Kong have also prompted outrage in the US administration and the market now waits to see what action Trump decides on. The prospect of tensions spilling over into a re-escalation of the US/China trade war raises serious downside risks for the global economy and any retaliation from China will likely provide a drag on risk sentiment.

Technical Views

USDCNH (bearish below 7.0570)

From a technical viewpoint. USDCNH has broken below the 7.0570 level and rising trendline from 2020 lows. With VWAP turning negative here, the near-term bias has turned bearish. While price remains below the broken trendline the next downside objective is the yearly pivot above 6.9400.

USDCNH Falls As US/China Tensions Rise

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