Good afternoon forex friends! I spotted a very simple chart setup on GBP/AUD that goes well with the recent surprise cut from the RBA. Are we about to see a breakout higher?
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
With the U.S. jobs number coming out tomorrow, I wanted to stay away from the Greenback for my next trade idea, which brought me to this simple setup on GBP/AUD. This pair has been on an uptrend since bottoming out around 1.8400 in mid-January, mainly on broad Aussie weakness (Global growth and inflation concerns, falling commodity prices, and a surprise rate cut from RBA this week), and on the one hour forex chart above, we can see a simple ascending triangle forming. This formation tends to lead into an upside break in uptrends, and with the RBA rate cut still fresh, I think there’s a good chance for it to happen.
Of course, I can’t be sure of anything, and it’s also possible that we could see one more pullback to the rising trendline and rising moving averages before we get a possible move higher. With those two scenarios in mind, I’ve decided to put up two orders, and when one of them triggers, I will cancel the other (aka the One-Cancels-the-Other (OCO) order). My stop will be a wide one using the weekly ATR level, and my targets will be pretty flexible since the pair is heading into uncharted territory beyond these current levels. Here’s what I am doing:
Long full position GBP/AUD at 1.9700, max stop at 1.9350, initial target at 2.2000
Long full position GBP/AUD at 1.9500, max stop at 1.9050, initial target at 2.0000
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 a little over 1:1. Of course, I will look to add to my position (and trail my stop) if the trade goes my way to maximize my gain.
Also, I’ve decided to close my orders to short AUD/USD since we’ve got the U.S. job numbers coming up tomorrow. While I actually feel like the event would help me get in the trade and that area has a good chance of holding, I’ve learned that anything can really happen in the forex markets (ask any forex trader with CHF orders/position on Black Thursday) and it’s best to reduce risk when it makes sense.