Trade Idea: Short-Term EUR/AUD Retracement

Aussie weakness has been in play as iron ore prices tumbled last week while euro rallies could resume now that the focus is shifting back to fundamentals. I’ve got my one good eye on this quick EUR/AUD pullback!

Long EUR/AUD Idea

After recently breaking past the long-term area of interest at the 1.4200 handle, EUR/AUD has been on a steady climb and is moving inside an ascending channel pattern on its 1-hour time frame. Price bounced off resistance around 1.4900 so I thought it would be an opportune time to wait for a correction to support.

Applying the Fib tool on the swing low and high shows that the 38.2% retracement level lines up with the bottom of the channel near the 1.4700 mark. However, I’m also seeing a stronger resistance-turned-support closer to 1.4600 and the 61.8% Fib so I’ll be setting my stop below that region.

EUR/AUD 1-hour Forex Chart

EUR/AUD 1-hour Forex Chart

Stochastic has already pulled out of the oversold region but seems to be having a tough time heading further north for now, so bears might still have a chance to take the pair down to the nearby support zones.

There are several factors weighing on AUD at the moment, including weaker iron ore prices on indications of a slowdown in China and additional downside pressure on commodity demand due to Fed tightening expectations. Even though China’s latest trade surplus came in higher than expected on an 8% gain in exports and an 11.9% pickup in imports, these components are short of the projected 11.3% jump and 18% gain, respectively.

Also, the freshly released Australian retail sales report indicated a surprise 0.1% decline versus the projected 0.3% rebound. This marks the third consecutive monthly drop in consumer spending, partly due to subdued wage growth being unable to keep up with the rise in price levels.

As for the euro, economic data from its top economies have been mostly stronger than expected while Macron’s victory in the French elections provided some assurance that the region could stay intact. Its flash CPI readings came in much stronger than expected, but the ECB is careful not to pat itself on the back just yet.

I’m looking to go long at 1.4725 with a stop at 1.4575 and an initial profit target at 1.4975. I’ve risked 0.5% of my account for this position for a potential 1:1 play. I’ll be moving my stop to entry once price tests the swing high and I’m also open to adjusting my target higher to aim for the longer-term resistance near 1.5300.

 

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.

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