Trade Idea: GBP/AUD Short-Term Pullback

It’s about time I hopped in this pound selloff! I’m seeing a quick pullback on the 1-hour chart of GBP/AUD so I entered a small position at market.

Short GBP/AUD Trade

As Pip Diddy mentioned in his latest session recap, the British pound chalked up yet another sharp drop early this week as traders continued to price in the odds of a hard Brexit. This comes after the “flash crash” last week and U.K. Prime Minister Theresa May’s confirmation that Article 50 would be invoked by March next year.

GBP/AUD 1-hour Forex Chart

GBP/AUD 1-hour Forex Chart

Price broke below support around the 1.6200 handle then dipped to a low of 1.6043 before making a correction. Applying the Fib tool on the latest swing high and low on the 1-hour time frame shows that this broken support area is right in between the 50% and 38.2% Fibonacci retracement levels, which might be enough to keep further gains in check.

Because of that, I decided to go for a tiny position at market in case price drops like a rock once more. I was able to get in at 1.6215 and I set my stop past the swing high and 1.6500 handle, aiming for last week’s spike down to 1.5700. I still plan on adding to my position if price shows more downside momentum in breaking below the 1.6000 mark.

I’m bullish on the Aussie because of the RBA’s relatively neutral tone in their latest policy statement. This could be indicative of how the Australian central bank might approach its next interest rate decisions under the leadership of new Governor Philip Lowe.

Here’s what I have:

Short GBP/AUD at market (1.6215), stop loss at 1.6525, profit target at 1.5725. I risked 0.25% of my account on this initial position, going for a 2.5-to-1 R:R.

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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