AUD/USD is currently testing key trend line support as USD/CNH eyes critical 6.95 handle

• The Aussie is falling into bearish territory within a few pips of a key support line, that if broken with daily closes, opens the case for a much deeper retracement to the 0.68 
• Despite a relief rally in China, (China stocks were up 4 per cent lifting spirits), both the CNH and Aussie are under pressure. 
• Currently, AUD/USD is trading at 0.7083, having fallen from a high of 0.7125. The low, so far, has been 0.7075. 

The benchmark Shanghai Composite index surged more than 4% on Monday and had its best day in more than two and a half years in the recovery of the latest rout in Asia last week. Chinese officials were jawboning their struggling markets higher - (China is one of the world's worst-performing stock markets and the Shanghai index is down more than 25% this year alone so far).

Trade wars have been a huge weight on China's sentiment, but there is an underbelly of weakness in the Chinese economy despite such fears. Official data recently showed that the Chinese economy expanded just 6.5% in the third quarter, its weakest growth since the depths of the global financial crisis. However, on Friday, central bank chief Yi Gang said that the recent slump in the stock market didn't reflect the state of the economy, which he described as "moving forward" in a stable manner.  He also lifted spirits by saying that the government would take more measures to support the economy. 

A double dose of negativity for the bulls

However, the greenback is fired up, and Wall Street is on a frayed thread with the DJIA currently testing the 18th October lows and trading below a key trend line support. Fundamentally, investors are concerned over higher rates following the FOMC minutes underscoring what was already feard. Trade wars are seen as dangerous for both the US and Chinese economy, and geopolitical tensions are at their highs around most corners of the world.  

AUD/USD trades as a proxy to risk sentiment and the greenback is also playing catch up with rising US yields on Monday making for a double dose of negativity for the antipode currency. Throw in USD/CNH back on the bid, EM-FX is also going to be a menacing factor for the bulls.

AUD/USD levels

The weekly sticks paint a heavily bearish outlook. Nearer-term, the recent slide out of the rising wedge formation is bearish, and with pressures from the 4hr 21-SMA, 0.7059 is a key target. In bears persist with such pressures, 0.6995/75 comes ahead of 0.6827 as the 2016 low. On the flipside, 0.7150/60 and the 2018 downtrend line and daily cloud base sitting at 0.7196/98 come next. The wider critical resistance is located at 0.7310/15, where September's high is then targetted.