Chart of the Day AUDCHF

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AUDCHF Bearish – Probable Price Path

Chinese PMI data released yesterday showed that the economy was in recovery mode, although driven from the domestic side at this point supported by government policy, with export orders evidently very weak. The ANZ’s NZ business outlook survey confirmed that confidence and business conditions were woeful in April, even if the readings in the latter part of the month were slightly better than the early part, with the own-activity indicator improving from -61% to -47%. That reflected a glimmer of hope later in the month that lockdown restrictions would ease, as they indeed did. The Chinese proverb “A journey of a thousand miles begins with a single step” seems apt here as the economy faces a long road to recovery (unless you’re a supplier of lettuce to McDonalds or chicken to KFC, following reports of shortages due to unprecedented pent-up demand.

The AUD finished April with its biggest monthly gain in four years, as the currency  rode the wave of optimism that gripped equity markets in April. One of the factors supporting the dramatic 19% rise from the 0.5510 low hit on March 19 in the AUDUSD was the view that Australia would benefit from the bounce back of China’s economy later in 2020. The positive impact on the AUD due to its role as a proxy for China sentiment may be turning negative. The war of words between the U.S. and China over China’s handling of the coronavirus pandemic significantly escalated Thursday when U.S President Trump threatened fresh tariffs on China while suggesting the virus originated in a China lab. Meanwhile tensions between Australia and China have increased since the Australian government called for an independent international inquiry into the origins of the COVID-19 virus. The AUD broadly fell during the height of the U.S.-China trade war between 2018 and the end of 2019 and started to recover some lost ground when the trade war de-escalated with the signing of a phase one trade deal between the two countries in January. The resumption of tensions between the U.S. and China might provide the excuse for AUD longs to exit and be the catalyst for a correction lower

From a technical and trading perspective, the AUDCHF printed a key reversal day yesterday and we have seen follow through in the overnight session. Price is poised to test symmetry swing support at the .6165 level. On the intraday time frames bearish exposure on a pullback to the 50% retracement should be rewarded using an invalidation point just above the 78.6% retracement of the current first wave of at least a three wave potential decline

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