Kinda kicking myself for exiting this short early in April, but I still think there’s opportunity with fresh downside momentum in AUD/USD. Check it!
AUD/USD Downside Momentum
As my main man Pip Diddy notated earlier in his morning London session recap, commodities took a dive in today’s session on concerns of a potential China slowdown, sparked by the weaker-than-expected Chinese PMI report and the recent Chinese regulatory crackdowns that may potentially take away market liquidity. The broad commodity hit included major Australian exports like gold, copper, & fossil fuels, but the biggest factor may have come from the drop in iron ore (Australia’s largest export at around 20%), which actually saw a halt in trading after hitting its 5% max loss limit.
These concerns and pressure on the Aussie aren’t likely to fade away in the short-term, and with the Fed still on its rate hike path to support the Greenback in the short-term, momentum lower in AUD/USD makes sense and is likely to continue. We do have NFP coming up tomorrow to spark volatility, and potentially further USD bullishness.
I’m not going to jump in right away to play these themes since the stochastic indicator is showing potentially oversold conditions and as the pair seems to be seeing support at the .7400 handle. So, I’m looking for a bounce back to the broken support area highlighted on the four hour chart above to start nibbling on a short position. My stop will be 2x the daily ATR and my max target will be the major swing lows last seen at the end of 2016. Here’s what I’m doing:
Short half position AUD/USD at .7450, max stop loss at .7570, max target at .7175 for a potential 2.29:1 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 still has strong downward momentum around that major swing low area.
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.