GBP/AUD has been on a monster rally for a while. Maybe this week’s busy forex calendar can help me get in at a great price.
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A trend doesn’t get any more simple and beautiful as GBP/AUD price action over the last few months. The reason for the move is mainly the combination of positive sentiment that the BOE will eventually raise interest rates if the UK economy continues to improve, against negative sentiment on a weak Australian economy, accompanied by recent (and potentially further) rate cuts from the RBA this year. Let’s also not forget Australia’s biggest trading partner, China, is down in the dumps. This means potentially less trade activity for Australia and a continued hit to in demand commodities like gold (Australia is a large producer of gold).
Technically, the pair is in a solid uptrend and in the past, and we can see slight dips before continuing in the uptrend (pointed out by the blue boxes in the chart above). With this week filled with top tier events for Australia and the U.K., I think there will be enough volatility to get this pair moving. And if it’s to the downside, I’d like to take a small nibble at the potential support area around the 100 simple moving average, which is also around 300 – 400 pips away from the recent swing highs (the same distance as previous pullbacks before buyers jumped in). And because of the full calendar, I’ll start off small and look to scale in bigger if the trade does go my way. Here’s what I am going to do:
Long quarter position GBP/AUD at 2.1100, max stop at 2.0700, adjustment target at 2.01500
I’m only risking 0.25% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1:1 for now. After we get past all of this week’s top tier events, I’ll definitely look to add to my position and trail my stop if the situation makes sense. My adjustment target is where I’ll make that re-assessment and decision.