USD/JPY Update & EUR/AUD Short Forex Idea

Here’s a quick review on my USD/JPY idea from last Friday, and a fresh idea to hop back into a EUR/AUD short.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

Long USD/JPY

Original Trade Idea: Short-term Long on USD/JPY

USD/JPY 1 Hour Forex Chart

USD/JPY 1 Hour Forex Chart

A big missed trade here on USD/JPY as the market went into bull mode thanks to broad demand of Greenbacks and a broad sell off in the Japanese Yen. Buyers hopped in at the moving averages, creating dynamic support and drawing in more buyers at the process. With the market now over 100 pips up on the week, it’s safe to say I’ve missed the boat on this one, so I decided to close my open orders to buy at 103.50. No trade.

This is one of those trades where I missed out on a big move in my direction by trying to get a perfect entry. Frustrating, but it happens and it’s time to move on.

Short EUR/AUD

EUR/AUD 4 Hour Forex Chart

EUR/AUD 4 Hour Forex Chart

Since I closed my last EUR/AUD trade in August, it looked like I was a bit too early as the pair kept its downtrend intact. Fortunately for me, it looks like we got a huge bounce and I may be able to hop back into this pair at a great price.

Using the Fibonacci retracement tool, it looks like the Fibs line up with other arguments for potential sellers to hop back in:

  • Broken support turned resistance
  • Minor psychological level
  • Moving averages as dynamic resistance

This all comes together around 1.4250, but instead of waiting for that level to be testing, I’m looking to scale in around the 38% and 61% Fib areas to give me an average entry at those levels.  I’m also being conservative because we do have the ECB statement coming up this week, which could be a big catalyst for volatility and unknown direction.  My stop will be a wide one because of the major events (one weekly ATR), and my initial target is the next minor support level last seen July 2013:

Short half position at 1.4200, stop at 1.4450, initial target at 1.3900

Short half position at 1.4300, stop at 1.4450, initial target at 1.3900

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 1.00% of my account on this one, and if both entries are triggered with this trade structure, I have a potential reward-to-risk ratio of about 1.75:1. 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!