Trade of the day: EURAUD

Summary:

• Australian Trade Minister confirms that trade ties with China are strong

• China may need high quality Australian coal to conform to its environmental protection efforts

• EURAUD experienced significant jump yesterday and is now pulling back from the upper limit of the consolidation range

Trade: Short position on EURAUD at market price

Target: 1.5800

Stop: 1.6100

Source: xStation5

Justification: The Australian dollar took a major hit yesterday when reports surfaced saying that the Chinese Dalian port decided to ban imports of the Australian coal. However, the move may have been exaggerated given recent comments by Australian authorities. Country’s trade department said that trade ties between Australia and China are very strong helping to ease concerns a little. Moreover, coal from Australia is of very high quality and given China’s environment protection efforts, switching to coal of poorer quality could question reasonability of Chinese environmental law that took effect at the beginning of 2018. Having said that, we see a scope for a pullback to occur on EURAUD market. As the pair moved lower today from the vicinity of the upper limit of the consolidation ranging 1.58-1.60 we see potential for this move to extend. We recommend going short on EURAUD at market price with a target of 1.5800 and a stop loss order place near early-January peak at 1.6100.