AUD/NZD broke a major psychological area last week and looks to be holding below that area since then. Fakeout or will the trend continue?
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Fakeout or breakout? Of course we won’t know until we know, but with my man Forex Gump making economic arguments for a relatively strong Kiwi and a potential interest rate cut by the Reserve Bank of Australia at the next policy meeting, I think the odds are better than average this trend lower may continue.
With volatility creeping lower after the break, I’m not going to wait for a deeper pullback before scaling into a short position, but my stop will still be a wide one incase there is a surprise from one of the many mid-to-top tier events coming from the forex calendar in the next few weeks before the RBA meeting in March. I’m keeping my target open, but my first initial re-assessment level will be 1x my max risk. Here’s what I am doing:
Short half position AUD/NZD at 1.0400, max stop at 1.0650, initial target at 1.0250
Short half position AUD/NZD at 1.0500, max stop at 1.0650, initial target at 1.0250
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 1:1 if both positions are triggered; more if I decide to let it run depending on the market story.