AUD/USD: Positioning Ahead of Potential QE3 – Closed Early

Trade Closed: 2012-06-15 1:43

What a good trading week! Our ascending triangle setup worked like a charm!

Thanks to speeches by central bankers yesterday, traders largely ignored the ridiculously rapid climb of European bond yields.

As it turned out, central bankers and government officials from the euro zone, the U.S., Japan, and even some representatives from the G20 hinted that a coordinated intervention is on the table in case of a liquidity crisis following the Greek elections. When you have “coordinated intervention” in the works, who needs QE3-friendly speeches?

Despite the attempt at inspiring confidence though, I have decided to close my position ahead of the Greek elections. See, my instincts are telling me that chart patterns will hardly matter if the Greek elections turn out as chaotic as many are preparing for.

AUD/USD Trade Closed

That said, I’m happy to share that I closed my trade at 1.0017 for a 68-pip win and a 0.70% boost on my account. Not bad for a few hours’ worth of trading, eh?

I could’ve extended my gains, of course. AUD/USD did break above parity after all. But right now I’m deciding not to push my luck. Do you think this is the best decision? How could you have traded the pair better if you were in my position?

Looking forward to your tips!

Trade Idea: 2012-06-14 3:48

Word on the street is that weak U.S. data could push the Fed to announce QE3 next week so I’ll be buying that rumor with my AUD/USD long trade.

You see, the U.S. just released a disappointing retail sales figure for May, printing its second monthly consecutive decline and confirming that households aren’t really in a spending mood these days.

AUD/USD Triangle Play

The possibility of more easing from the Fed could lead to a spike in inflation, which explains why traders are scurrying to buy gold and other precious metals for the past couple of days. Since gold acts as a hedge against inflation and the Aussie is positively correlated to gold prices, AUD/USD could draw further support from the commodity price rally.

As for technicals, I’m keeping a close eye on this ascending triangle on AUD/USD’s 1-hour time frame. The pair is sitting right at the rising trend line or bottom of the triangle just as stochastic crawled out of the oversold zone.

With the pair making higher lows and about to make its fourth test of parity, I figured that Aussie bulls are gathering momentum for a potential upside breakout.

However, I remembered that the Greek elections are coming up this weekend and I plan to limit my risk prior to that event. Depending on price action, I’d probably adjust my stops before the end of the week and just re-enter my trade on Monday open if the elections turn out positive for risk sentiment.

If QE3 talks are still on the newswires early next week, I might start thinking of doing a 50/1/1 STA strategy on this trade. Ain’t nothing wrong with pressing my advantage, right?

Here’s my trade idea:

Buy AUD/USD at market (.9950), stop loss near .9900, first PT at 1.0000

I plan to move my stop to entry before the end of the week and probably set my STA orders if QE3 is still on the table next week.

As always, I’ll risk 0.5% of my account on this setup. Make sure you check out our risk disclosure if you’re planning to join me on this one. And don’t hesitate to give me a heads up if you’ve got some other thoughts on this pair!

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Looking forward to hearing from you,

Happy time

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  • kiran

    I am a new 

    • Kayvons

      Welcome fellow newbie :)…heed the knowledge on here, it’ll serve you well little one.

      • Kiran

        Thank you Kayvons and happy pip for the encouragement. This blog and the website are undoubtedly one of the best places for learning. I wish I have found this site earlier. (I have mistakenly posted above one.) Cheers. 

  • Kayvons

    Good thinking happy pip! I see it move above parity, pull back, and looks like making another run. However, I’m seeing red lights everywhere in the short term – overbought on 4 hour stochastics, also price extended on the 4 hour.  There’s bearish divergences evident on the 1 hour stochs as well as the CCI.  I’m thinking this could be a good fade play in the short term. What do you think?

    Your posts are like a guiding light for me and I really enjoy reading them. Keep up the good  info going.  

    One of your pupil Newbies

    • happypip

      All valid points! But from a fundamental perspective, I think US dollar weakness could outweigh those technical signals for the meantime, at least until the end of this week. 
      But since you pointed those technical signals out, I’m reminded to adjust my stops in order to limit my risk before the weekend. Those red lights could come into play as traders book profits and position themselves ahead of the Greek elections too, so fading that move for a day trade could work out pretty well. 

      Thanks so much for the kind words and for checking out my blog. See ya around and may the pips be with you!

      • Kayvons

        Thanks Happy Pip. I’m on point regarding the weakness of the dollar in the pair, which is why I want to keep my stop loss as close as possible. So I just placed a short order on the 6:00 hourly candle with a stop loss above yesterday’s high. Worst comes to worst I’ll be risking about 15 pips.  However, if I do stop out and yesterday’s high is taken out I’m looking for more of an upside move, which is why I placed a buy stop at my stop loss level.  I’m hoping I got this analysis done correctly.

        • happypip

          That was a pretty good setup for a short-term trade! Better luck next time though :)

    • Pedram

      Hi Kayvons
      I’m a newbie too(yet in school) and have just read the lesson about Divergence trading.
      I’d like to know that is that bearish divergence the same as the attached image or I’m wrong.(just like to know)
      Thanks!

      • Kayvons

        Good to meet you Pedram. The shool is awesome. Learn alot of good things in simple language (hard to find that on the net). You got it right on the divergence identification. Good job.  That’s exactly the divergence I noted to HappyPip. Although as she mentioned, the fundamentals outweigh the technicals at this point with the Greek elections looming in the corner and the US production numbers coming up tomorrow. I did a risky trade on this setup and I already got stopped out. Seems like AUDUSD holding pretty solid above parity.  

        Well good luck with the rest of the lessons and I’m sure we’ll see you around here more often :) happy trading.

        • happypip

          Awww, it’s so nice to see a lot of new folks interacting right here. Keep the learning going and keep those pips comin’ y’all! :)