Decided to take a nibble on AUD/CAD short as the pair runs in to a potential area of resistance. Will parity and a falling trendline draw in more forex traders to sell?
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This is mainly a technical trade to play the lower “highs” we’ve seen lately, as well as the stochastic showing that the recent bounce may be a bit overdone at the moment. Plus, this is all happening just under a major psychological level (1.0000/parity). So, I think the odds are better than average that at the very least, forex traders are eyeing this area for potential resistance.
Fundamentally, I’m looking ahead to next week’s Reserve Bank of Australia meeting, and the potential we’ll see dovish remarks since that seems to be the central bank trend lately. If so, we could see a similar reaction to the recent RBNZ monetary policy meeting (i.e., a drop in value for the Aussie). Plus, we’ve seen a recent shift in broad risk aversion that has benefitted oil (crude has bounce 25% since lows around $27/barrel), and may continue given the recent rhetoric from central banks that free money is likely here to stay. All combined, I think probability favors at least a hold in AUD/CAD from rallying further, and if there is a move lower, short-term momentum players could step in.
I’ve already shorted with a nibbler position at market, with my stop above the recent swing high, and my profit target at a potential support area (2015 Summer highs). Here’s what I’m doing:
Short AUD/CAD quarter position at market (.9941), max stop at 1.0125, profit target at .9700
I’m only risking 0.25% of my account on this one because of the RBA meeting, and with this trade structure, I have a potential reward-to-risk ratio of about 1.30:1. If the market does go my way and the next minor support area is broken around .9800, I will look to re-assess and possibly add to maximize my profit.