AUD/USD: long-term 61.8% Fib support come could into play if trade wars escalate

• The US is all set to fire the first shot in the trade war with the US, Beijing has vowed to retaliate in kind.
• Aussie risks falling below 0.7327 – 61.8 percent Fibonacci retracement of the rally from the January 2016 low to the January 2018 high – on escalating trade tensions.

The US-China trade war is close to becoming a reality and hence the probability of Aussie dollar losing the long-term support of 0.7327 (61.8 percent Fibonacci retracement) is high.

At press time, the AUD/USD is trading at 0.7383, having clocked a high of 0.7397 earlier today. The currency pair has been restricted to a narrow range of 0.73 to 0.77425 since June 27.

The US would begin collecting tariffs on $34 billion in Chinese goods at 12:01 a.m. Washington time (0401 GMT) on Friday, according to Reuters. Further, Trump has threatened to impose additional tariffs on goods worth $400 billion if China retaliates in kind to initial US tariffs.

Clearly, the world’s two largest economies are heading for a long drawn out trade war and that could hurt AUD and other risk assets.

A break below 0.7327 would bolster the already bearish technical setup – bear flag breakdown on the daily chart and downward sloping 50-day, 100-day and 200-day moving averages.

AUD/USD Technical Levels

Resistance: 0.74 (psychological hurdle), 0.7424 (July 4 high), 0.7444 (June 24 high).

Support: 0.7361 (previous day’s low), 0.7327 (61.8 percent Fibonacci retracement), 0.73 (psychological figure).