I’m cautiously hopping back on to the EUR/AUD downtrend now that the market is retesting a previous area of strong interest. Time for the sellers to take back control?
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I’ve got the four hour forex chart up of EUR/AUD, where we can see the pair is still pulling back higher in its downtrend after nearly hitting 1.4200 mid-July. A surprisingly bad Aussie jobs report last week had a big part to play to support the recent rally, but I think after what we saw from the ECB monetary policy meeting last week, a focus on EUR weakness may return for this pair.
With the pair now testing the bottom of that previous consolidation range, I think it’s the right time for me to hop back into this downtrend with a conservative position. I’ll be going in long here with the market now testing the 61% Fibonacci retracement levels and just under the major psychological level (1.4500). My stop will be a wide one using the weekly ATR (200 pips), and I’ll be going for the major support area that held back in mid-October 2013. Here’s what I’m doing:
Short full position at 1.4450, stop at 1.4650, max target at 1.4150
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 1.5:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. I’ll actually consider cutting this trade if it gets above 1.4500 and holds, or if next week’s release of the RBA meeting minutes sparks strong bearish sentiment for the Aussie. And if does go my way, I’m open to adding to my position and trailing my stop if the story supports a further move lower.