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  • The optimism generated by reports of US-EZ auto deal and hawkish ECB expectations are capping the downside in the EUR.  
  • However, the US-China trade war could trigger risk aversion and push the common currency lower.  

The US-China trade war is close to becoming a reality, however, EUR/USD is showing no signs of stress.

The pair continues to trade flat-lined around 1.1685, having hit a high of 1.1720 yesterday. The downside i  is likely being capped by more hawkish European Central Bank (ECB) expectations and reports suggesting a possible US-Eurozone auto trade deal.

Focus on US-China trade war

The US tariffs on $34 billion worth of Chinese imports are set to take effect today. Further, President Trump has threatened to impose an additional $500 billion tariffs if Beijing imposes retaliatory tariffs in response to initial US tariffs.

Clearly, the world’s two biggest economies are closing on a long drawn out trade war and the financial markets may turn risk-averse in European and US session. Hence, the calm in the EUR/USD could be short-lived. Further, the trade standoff could overshadow the monthly US non-far payrolls figure, scheduled for release at 12:30 GMT today.

EUR/USD Technical Levels

Resistance:1.17 (psychological hurdle). 1.1743 (descending 50-day moving average), 1.1852 (June 14 high).

Support: 1.1648 (10-day moving average), 1.1591 (July 2 low), 1.1508 (June 21 low).