Starting off the second quarter with a simple short forex trade setup on AUD/CAD as the pair retests a strong consolidation area on a pullback.
Today’s setup is a pretty simple one, fading the currently rally in the Aussie as it retests a previously strong consolidation area. I think a catalyst for this trade to work is the recent weak data from Australia and China will eventually lead to another rate cut by the RBA, and possibly another most lower for the Aussie dollar.
And since I can’t short AUD/NZD since Pipcrawler has it covered, I think AUD/CAD would make a decent alternative. Sure, the Loonie does have issues with falling oil prices, but because of Canada’s close proximity to a recovering U.S., it’ll hold its own. Plus, with a higher interest rate, the carry on being short wouldn’t be as bad.
So, I’m scaling into a short position, starting at the bottom of the consolidation range and taking a short near the top, around an area that held well as resistance through February and March. My initial target is the strong support area between .9400 – .9500, which has held strongly both this month and at the end of last year. Here’s what I am doing:
Short half position at market (.9701), max stop at .9940, target at .9450
Short half position at .9850, max stop at .9940, target at .9450
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.96:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned!