US-China Trade War Accelerates, Prompts Only Limited Risk Aversion
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.
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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)
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)
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
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--- Written by Martin Essex, Analyst and Editor
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.