Remember that EUR/AUD long-term triangle bounce I was looking at last month? Well, it looks like there’s more confirmation that buyers are gaining traction.
Price didn’t exactly make that upside breakout from the descending line I was watching so I was unable to go long then, but it did make another bounce off the triangle support and created a double bottom formation. This classic reversal pattern suggests that bulls are putting up a strong fight and could even push for a break past the neckline at 1.4850.
This chart pattern is approximately 350 pips tall so the resulting rally could be of the same size, taking EUR/AUD near the daily descending triangle resistance. However, stochastic is already indicating overbought conditions so buyers might be feeling exhausted at this point.
I’m planning on waiting for more confirmation with a break past the neckline resistance before going long. I’ll set my stop below the 1.4500 handle and aim for the 1.5400 area, but I’ll be ready to trail my stop above entry to lock in gains once price has moved 350 pips in my favor.
The Aussie has returned a lot of its recent gains as commodities and risk appetite took a huge hit after China reported weaker home prices, limiting one of the key growth drivers in the world’s second largest economy. Weaker property demand in China could adversely affect iron ore shipments and prices, which have shown a positive correlation to Aussie price action.
As for the euro, the lack of dovishness in the ECB meeting minutes and the U.K. retail sales upside surprise seems to have reassured market players that Brexit fears may have been exaggerated. Apart from that, the ZEW economic sentiment figures have indicated improvements in outlook, which could then translate to stronger euro zone economic activity down the line.
Here’s my plan:
Long EUR/AUD at 1.4925, SL at 1.4425, PT at 1.5425. I’ll be risking 0.5% of my account on this setup and going for a 1:1 return-on-risk.
As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.