Going with a simple, shorter-term swing setup on GBP/AUD, playing a steady rise higher since the beginning of May. Will the forex trend continue?
Fundamentally, we’ve got diverging economies and monetary policies between the U.K. and Australia. The U.K. has seen a rebound in inflation & wage growth recently, support a potential rate hike from the Bank of England by next year. While in Australia, inflation, consumer sentiment and spending has slowed, supporting the recent rate cuts by the Reserve Bank of Australia in 2015. Will both environments continue to go the way they’ve been going? Of course, we don’t know, but in the short-term, it’s more likely we won’t see a big catalyst to shift the themes within the time frame I want to hold this trade.
Technically, the pair found resistance recently at 2.0500, even pulling back to 2.0300 in the past week. That may be the short-term support for now, so with another retest, I’ll look to take a nibble in that area. And if we do get a catalyst that favors a bearish move, I’ll take another nibble at the previous broken resistance area around 2.0100. And since this is a big moving pair, my stop will be a very wide one using the weekly ATR, with my target pretty open since this is in a pretty strong uptrend. But I’ll look to reassess and adjust my plan if the market gets to the previous swing highs. Here’s what I am doing:
Long half position GBP/AUD at 2.0300, max stop at 1.9800, initial target at 2.0500
Long half position GBP/AUD at 2.0100, max stop at 1.9800, initial target at 2.0500
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 less than 1 at my initial target, but like I mentioned, it’s just the point where I will reassess and adjust. If anything, I’ll look to add and trail up my stops to maximize the potential profit if the trend remains strong.
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!