I didn’t get a chance to re-enter last week because of a strong breakout, but this week is setting up a new forex trading opportunity on AUD/CHF.
After I closed out my last long trade on AUD/CHF, I was hoping to hop back in after the dust settled after volatility spike due to the ECB rate cut and on a pullback. Unfortunately, there was no pullback to be had as the pair immediately rallied the next day.
Despite the dovish RBA meeting minutes earlier during the Asia session (uncertain recovery, extended low rates), I still believe that AUD/CHF will be higher on the market drivers I mentioned in my previous AUD/CHF trade (mostly on interest rate differential) and when I saw the pullback this morning I decided to jump in long at the major psychological level.
My new stop level is still my usual volatility stop of one weekly ATR, which would be below the last swing low. Most likely though, I wouldn’t hold it until there if there is a solid break lower below the rising trending or if the story for either currency changed. My target is the next resistance level that held strongly between September and November of 2013. Here’s what I’m doing:
Long full position at .8400, max stop at .8250, max profit target at .8700
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 2:1. Of course, anything can happen in the forex markets, and this week, that “anything” that could happen could be in the form of the Swiss National Bank monetary policy decision on Thursday. That event usually isn’t a market mover, but this time could be different with the ECB lowering rates, potentially threatening that 1.2000 floor on EUR/CHF. I’ll keep a close eye on the markets and make adjustments if necessary. Stay tuned!