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US-China Trade War Accelerates, Prompts Only Limited Risk Aversion

US-China Trade War Accelerates, Prompts Only Limited Risk Aversion

Martin Essex, MSTA, Analyst

US-China trade war headlines:

  • The US has threatened 10% tariffs on $200 billion of Chinese imports; China has warned it will respond.
  • That has led to a flow of funds into safe havens from risky assets.
  • However, the movement has been modest, implying that trader confidence remains relatively buoyant and that the downside for ‘risk on’ assets is limited.

Our trading forecasts for Q3 have just been published; you can find them here.

And check out the IG Client Sentiment data to help you trade profitably.

Trade war in focus

The prospect of an escalation in the US-China trade war is leading to gains for safe-haven assets at the expense on those, like stocks, seen as essentially risky. However, flows have been light so far, suggesting that trader sentiment remains positive and that the impact on markets will be relatively light.

AUDJPY is a key indicator of sentiment, with the Australian Dollar seen as a proxy for China and the Japanese Yen as a haven. That lurched lower in New York Tuesday but has since steadied, implying that market sentiment remains broadly positive and that traders should be wary about selling the pair aggressively.

AUDJPY Price Chart, Five-Minute Timeframe (July 10-11, 2018)

Latest AUDJPY price chart.

Chart by IG

US Dollar, Gold, JPY; Unfazed by US-China Trade War Escalation

However, the markets are also signaling that the ongoing trade war could affect world economic growth. The price of copper, which is nicknamed “Dr. Copper” because of its correlation with global growth, has slumped to its lowest level since July 2017 and is now in a clear downtrend.

Copper Price Chart, Daily Timeframe (June 22, 2017 – July 11, 2018)

Latest copper price chart.

Chart by IG

The price of crude oil, which also acts as a gauge of economic health is falling too after US Secretary of State Mike Pompeo said Tuesday that the US will consider requests from some countries to be exempted from sanctions it will put into effect in November to prevent Iran from exporting oil.

More to read on trade wars

US-China Trade War: An Inevitable Conflict and the Impact on Equities, FX

US-China Trade War & a Brief History of Trade Wars – 1900 until Present

Resources to help you trade the forex markets

Whether you are a new or an experienced trader, at DailyFX we have many resources to help you: analytical and educational webinars hosted several times per day, trading guides to help you improve your trading performance, and one specifically for those who are new to forex. You can learn how to trade like an expert by reading our guide to the Traits of Successful Traders.

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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