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  • EUR/AUD takes to the blue skies on Trump’s tariff announcements.
  • Trump said that the US would impose a 10% tariff on $300bn of Chinese imports.

EUR/AUD rallied hard on the trade war noise as Trump, likely out of frustration with the Fed, decided to turn the screw on China following a meeting held with his US trade negotiators in the morning. The news sent a massive shiver down the backbone of markets which were still at odds with the Federal Reserve’s lack of clarity from the prior session.  

The Australian dollar took the brunt of the news and despite all the ducks aligning for a short side play in EUR/AUD, it was a stark reminder that position sizing is going to be crucial to survival in while China and the US remain at loggerheads with one another.  

Through a series of tweets, Trump said that the US would impose a 10% tariff on $300bn of Chinese imports, expressing his frustrations with the Chinese, saying that they were not following through on its pledges to buy more American farm products.  

“The US will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%,”

Trump warned.  

Now, it’s one thing saying this, but its another thing altogether implementing it on the same day that China and the US were supposed to meet again, so there is still time for Trump to dial down the rhetoric ahead of these meetings, but that now all depends on how China reacts to the decision and by the sounds of things, as stubborn as the Chinese are in business, the Global Times Editor in Chief made a statement in synch with the same notion saying that ‘China will by no means bring closer a deal that the US wants, it will only make it further away. I think the Chinese will no longer give priority to controlling trade war scale, they will focus on the national strategy under a prolonged trade war.’

AUD and commodity complex on a knife’s edge

This leaves the AUD on a knife’s edge, and despite how weak the eurozone economy is or how dovish the European Central Bank might be, a prolonged trade war will play havoc on global growth and will likely be a factor in next week’s Reserve Bank of Australia’s interest rate decision.  

The Aussie could find some solace if the RBA holds off from cutting rates next week, but without any prospects at all of a trade deal between China and the US, then the commodity complex is going to feel the heat – (AUD trades as a proxy tot he commodity complex).

“The ANZ China Commodity Index fell by 1.4%, driven by a sharp fall in the energy sector,” analysts at ANZ Bank explained:

“Oil prices collapsed, while gas was also weaker. The bulk commodity sector was also sharply lower, with iron ore prices the main driver. Weak economic data didn’t help the industrial metals sector, with copper and aluminium lower. Amongst the carnage, precious metal surged higher.”

 EUR/AUD levels

Technically, it is now anyone’s guess where we go from here but a 50% man reversion takes the pair back to 1.6210. Should the price remain bid, with a pullback, then the 23.6% Fibo opens the 1.6260s and the 38.2% Fibo is aligned with the 10th July highs. On a continuation of the upside, the 127.2% Fibo extension is aligned with the mid-June highs around 1.6360/70.