Since it was so kind to me the last time, I’m taking another shot on GBP/AUD as it looks to re-test a strong support area. Will forex traders jump back into this uptrend?
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Even though we’re nearing the end, the Summer season is still in full effect, meaning that this week is likely to bring about more boring consolidation behavior. The longer-term trend is still to the upside so I’ll look to play that, and the market looks like it’s on its way to give me an opportunity to do it again.
On the four hour chart above, we can see the pair grinding back lower after hitting the solid resistance area at 2.1500. It’s only a couple hundred of pips from that strong support area at 2.1000 and this week’s forex calendar can take it there and back up. We’ve got U.K. CPI data coming up soon and with the way inflation continues to be low, the odds are for another low reading, which could take Sterling lower. And we’ve also got U.K. retail sales coming in later this week, which is forecasted to improve over the previous read. These events should provide enough volatility to get me in the trade and take me higher if the numbers aren’t too bad.
For the Aussie, we’ll get the meeting minutes from the latest Reserve Bank of Australia meeting, which is also likely to spark some action in GBP/AUD, but probably short-lived unless there are new nuggets of information from the minutes.
So, I’ve decided to do a conservative entry to play the previous strong support area by going long with a nibbler position below the 2.1000 level. My stop will be a wide one since this pair does move over 400 pips a week, and my max target is that previous resistance area that can’t seem to be broken. Here’s what I’m doing:
Long quarter position GBP/AUD at 2.0900, max stop at 2.0650, max profit target at 2.1500
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 2.4:1. And after the top tier events release, I’ll reassess and possibly add another position if the story makes sense to do so.