Will the upcoming RBA monetary policy meeting may bring in some sweet forex volatility to make this simple Fibonacci retracement setup on AUD/USD work?
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My main man Forex Gump pointed out this week’s 5 Top-Tier Economic Events, and I thought the Reserve Bank of Australia’s (RBA) monetary policy meeting might be a good place to start for the week. Of course, no one knows if we’ll get a rate cut or not from the RBA, but with the Bank of Canada giving us a surprise rate cut and the Reserve Bank of New Zealand sounding bearish in recent weeks, I think the odds are pretty low we’ll hear anything hawkish from the the RBA. And even if the RBA didn’t cut rates, the Greenback is still the more attractive currency in the AUD/USD pair with the Fed set to hike rates sometime this year or next.
Because there is a possibility of a higher pullback today, I’ve decided to be a little conservative with my entry, waiting for a further up move and scaling into a short position on AUD/USD. I think the area between the 61% Fib and the major psychological level could draw in sellers if the Greenback continues to look like the better bet after the meeting. I’ll also go with a very wide stop of one weekly ATR from my average entry price, but my target will be a soft one at the previous swing low, and maybe even beyond. Here’s what I’m doing:
Short half position AUD/USD at .7900, max stop at .8135, initial target at .7720
Short half position AUD/USD at .8000, max stop at .8135, initial target at .7720
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 1.24:1 at my initial target; more if I decided to hold on and add to my position (and trail my stop) if it goes my way.