After a few weeks of consolidation, GBP/AUD is finally pulling back to make it an interesting buy once again into the really long forex uptrend.
This market has been in a major uptrend since breaking higher way back in April 2013, with buyers quickly hopping back in on any kind of pullbacks. Fundamentally, I like a long position played based on the idea that despite recent data, the Bank of England is still unlikely to cut rates and that the U.K. And while we already saw cut from the Reserve Bank of Australia, there’s speculation that another one could be thrown in with recent disappointing economic data in Australia and one of its largest trading partner, China, seen as slowing enough to cut rates themselves.
Technically, the pair went into consolidation mode after failing to break above 2.0000, ranging between 1.9600 – 2.0000 through February. This week, we saw a break below that range, and I think the next support area is around the previous minor resistance area around 1.9200. I’ll look to scale in small positions around there by throwing up buy orders for small positions at the 38% and 61% Fibonacci retracement levels. My stop will be the usually weekly ATR range, with a pretty open target given the strong uptrend. Here’s what I’m doing:
Long half position GBP/AUD at 1.9400, stop at 1.8800, initial target at 2.0000
Long half position GBP/AUD at 1.9000, stop at 1.8800, initial target at 2.0000
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 if both positions are triggered. 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!