The trade war US President Trump started and is now escalating, has turned into much more than trade. Some analysts point out that this is a technology war on top of that while others draw comparisons to a new cold war between two superpowers. Trump has made every effort to escalate the trade war, especially when news reports after bilateral meetings sounded a more optimistic. The reason may be that took on the mantle of a war time president as the election cycle is coming closer to a full start. Along the way, his advisors and Trump have severely miscalculated the Chinese response.
The latest intensification of the trade war was Trump’s move to slap $300 billion worth of Chinese imports, which were previously tariff free, with a 10% tariff starting September 1st 2019. Prior to his tweet, global financial markets were already in a risk-off mode which only accelerated. China instructed its companies to get out of the US agricultural market for the time being. This was a precision strike against the Trump base as he depends on their support. China is the US 4th largest agricultural market behind Canada, Mexico and Japan. The Trump administration has readied a $16 billion aid package to farmers as it tries to open up new markets for them.
This brings the Chinese Yuan into play as the People’s Bank of China allowed the exchange rate rise above 7.00 against the US Dollar. This was the first time since the global financial crisis of 2008 that the Chinese Yuan traded north of the coveted 7.00 mark. Forex traders are now focused on the PBOC’s Daily Yuan Reference Rate which currently stands at 7.0039 to the US Dollar. The Chinese Yuan is allowed to trade within a 2% range of this reference rate. It makes Chinese exports cheaper to trading partners and therefore softens any negative impact from US tariffs. Trump has now labeled China a currency manipulator and wants to engage into a currency war.
Since the Chinese Yuan is not as readily available to most forex traders, the Australian Dollar became the top proxy trade. Will the Australian currency get a boost as China is gaining the upper hand on Trump’s trade war? Follow the PaxForex Daily Fundamental Analysisnow and grow your balance trade-by-trade!
Despite the trade war with the US, China reported a surprise increase in exports for the month of July. Export rose by 3.3% annualized as imports plunged by 5.6% annualized, leaving China with a July trade surplus of $45.06 billion and June’s trade surplus was revised higher to $50.98 billion. It appears that China is doing a lot better than the Trump administration has predicted and with a growing trade surplus, China has the time and money which Trump lacks. Two famous quotes by General Sun Tzu sum up the current situation; “To a surrounded enemy, you must leave a way of escape.” and “There is no instance of a nation benefiting from prolonged warfare.” While China is maneuvering according to those principles, Trump appears to ignore them and follow his own advice. The Chinese Yuan Reference Rate will continue to dominate trading screens and here are three forex trades which will dominate your profits!
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A price action recovery started to materialize in the AUDCAD as the Australian Dollar faced heavy selling pressure over the past few trading weeks. With Chinese economic data surprising to the upside, this currency pair has more room to rally. The AUDCAD has just pushed above its primary descending resistance level as well as above it horizontal support area which boosted bullish momentum. An acceleration is now favored which will take this currency pair above its secondary descending resistance level until price action can challenge its next horizontal resistance level. Forex traders are recommended to buy any dips down to the lower band of its horizontal support area.
Some analysts believe that US President Trump is trying to force his central bank into steep interest rates cut, similar to the 50 basis point surprise cut by the RBNZ. Together with a slowing US economy, hurt by Trump’s trade war, the US Dollar could be in for a rough ride to the downside. The USDSGD is trading inside of its horizontal resistance area from where bullish momentum is being depleted. A breakdown is anticipated to follow and plunge price action through its next horizontal support level and back down to its primary ascending support level. Forex traders are advised to spread their sell orders in the USDSGD inside its horizontal resistance area.
The CCI remains in extreme overbought territory, but is further moving away from its highs. A push below 100 is favored to attract the next wave of sell-orders in this currency pair. Download your PaxForex MT4 Trading Platform and allow our expert analysts to guide you through the forex market, yielding over 5,000 pips in monthly profits!
With headwinds mounting for the US Dollar, the USDMXN is poised for a corrective phase. Mexico remains one of the top trading parters of the US, but the trade dynamic could shift as a result of a stronger Mexican Peso. Price action was rejected by its horizontal resistance area and a secondary descending resistance level formed. This currency pair is now expected to contract back down to its primary descending resistance level, which acts as temporary support. A breakdown below its next horizontal support level would preceded this move. Selling any rallies in the USDMXN into the upper band of its horizontal resistance area remains the favored trading approach.
The CCI is trading in extreme overbought conditions with a downward trend as this momentum indicator is poised to complete a breakdown. This would further add to selling pressure in this currency pair. Subscribe to the PaxForex Daily Forex Technical Analysis and simply copy the recommended trades of our expert analysts into your own trading account!
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