Forex Trade Idea: 2014-06-10
For this week, I’m going to nibble on a simple support break setup on EUR/AUD. Is this the beginning of another leg lower?
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
Since the ECB delivered on the much anticipated rate cuts hinted on back in May, it’s been a wild ride for the euro. Now that the markets have had a few days to reposition, I think the trend lower in EUR/AUD may continue.
Technically, we’re getting signs that forex traders are still in sell mode as the pair broke and is holding below the strong support levels around 1.4560 mid-May. For me, I think it’s a good time to nibble into a short position on the recent change in ECB policy (most likely euro negative) and ahead of what could be another better-than-expected Australian Jobs number this week; at the very least, the interest rate differential favors the Aussie in this pair.
And just in case we do see a weak jobs report for the Aussie, I’ve decided to be conservative by splitting up my entries between current levels and the previous swing highs to give myself a better average entry price to play the trend lower. My profit target is the previous major support last seen in November 2013. Here’s what I am doing:
Short half position at market (1.4511), stop at 1.4805, profit target at 1.4150
Short half position at 1.4700, stop at 1.4805, profit target at 1.4150
I’m risking a full 1% of my account on this trade, and if both entries are triggered, this trade structure has a potential 2.2:1 return-on-risk. If I don’t get my second entry, I’ll be on the lookout to add to my position and trail my stop if it goes my way to maximize my profit potential.