GBP/AUD has been on a heck of a run lower, and I think I may able to play it at a great price if the forex pair continues to bounce higher.
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This is mainly a technical play on what has been a solid downtrend in GBP/AUD. The British pound has been weaker on the continued sentiment that we won’t see an interest rate hike from the Bank of England, and on the other side of the coin, the Aussie has found buyers on the recent global shift back into risk assets.
I think the probability that weak GBP sentiment hangs around is likely given the weakness in global inflation and uncertainty in other global economic metrics, but the recent strength in the Aussie is more uncertain to me, especially with this week’s weak Australian jobs data. Because of that, I’m going to be conservative and wait for a pullback before joining the downtrend.
So, I look to the falling trendline, falling moving averages and Fibonacci retracement area as a potential resistance and entry area. My max stop is well above the falling trendline and almost a full weekly ATR from my first entry level. My target is the next potential support area, which is an area of interest throughout the first quarter of 2015. Here’s what I’m doing:
Short half position GBP/AUD at 2.0200, max stop at 2.0725, max target at 1.9200
Short half position GBP/AUD at 2.0400, max stop at 2.0725, max target at 1.9200
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 2.79:1. 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. Stay tuned by following me on Twitter and Facebook!