Keeping it simple once again with this textbook range setup on AUD/USD. I’m still bullish in the Greenback over the Aussie, and I’m finally getting another chance to play at a potentially great price.
AUD/USD Trade Setup
Yesterday, the Federal Reserve gave me the opportunity to play my fundamental bias by sounding a little more dovish on future rate hike expectations than the market expected. This sent the Greenback reeling against the majors, and since I’m still a dollar bull, I’m looking at this as an opportunity to buy USD once again after getting out of my USD/CHF long trade.
But this time, I’m getting short the Aussie to fund my USD long, mainly because I think the recent run up higher in the Aussie could be losing steam, as well as the economic performance difference (U.S. Q4 GDP +1.90% vs Australia Q4 GDP+1.10%) and monetary policy difference with the FOMC looking to hike interest rates a couple more times while the RBA is likely to hold steady with their overnight cash rate. I also think we’ll get a bearish catalyst for the Aussie next week with the Reserve Bank of Australia’s monetary policy meeting minutes, likely on concerns over the weak inflation situation in Australia, especially when it comes to wages.
Technically, AUD/USD is testing a very strong resistance area around .7700 and so far, it looks like it’s holding at the moment despite the bearish U.S. dollar reaction to the Fed yesterday. With a potential target at the bottom of the range and a weekly ATR stop, this situation and the potential reward-to-risk is worth taking a shot for me to see if sellers will take control gain. Here’s what I’m going to do:
Short half position of AUD/USD at .7700, max stop loss at .7870, max target at .7200 for a potential 2.9:1 return-on-risk. I’ll be risking only 0.5% of my account on this position and I’ll look to re-assess to potentially reduce my risk and maximize my gain if I’m triggered and the market gets back up to the middle of the range.
As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.