AUDUSD: Buy the Dip? – Trade Closed

Trade Closed: 2010-07-18 20:01

PoD Chart

Like in two of my previous trades, price initially went my way (50 pips in this case), before reversing and hitting my stop loss, It looks like risk aversion is back in play, as major equity indices in the US took serious hits last Friday. The S&P 500 dropped 2.88% while the Dow lost 2.52% of its value. I’m looking at the charts right now and it looks like the commodity-based currencies are off to a poor start. Another case of risk aversion? After all, the Nikkei is already down 2.86% as I write this.

Stopped out at 0.8660: -100 pips / -1.0%

What can I take away from this? Well, the commodity dollars seem to be in a very confused state right now. They are being propped up by their relatively strong fundamentals, but they are unable to create substantial gains because of growing concerns on global economic recovery. This means that I must be quick in taking profit and adjusting my trades.. If I played it tight or trailed my stop, I would’ve walked out without a scratch… or even with a little profit.

Trade Idea: 2010-07-15 21:28

PoD Chart

Looking at the 1-hour chart of AUDUSD, it looks like that baby has been consolidating within a range this whole week. If you ask me, it’s prime for a break… to the top side! I notice all those lower shadows and can’t help but feel that there’s a lot of traders looking to buy up AUDUSD.

Moreover, I popped on the Fibonacci retracement tool and they seem to be holding well. In fact, the 50.0% level lines up with the weekly open price and what do you know – none of the candles can close below it!

Now, I’m not going to be too aggressive on this trade, as I see that stochastics has a way to go before hitting oversold territory. I’m looking to enter at .8760, which is just a few pips above the 61.8% Fib level. I’ve put a relatively wide stop of 100 pips, which is roughly equal to the daily average true range.

I’m aiming for near the top of the range, at .8850, where there seems to be strong resistance. Still, I feel that a breakout – the good kind mind you, not the bad ones that come with pimples – is in the cards. Ultimately, I’m going to let my second position run and see where it takes me.

On the fundamental side, it seems like traders are turning their backs against the Greenback since the US has been printing one disappointing economic report after another. After their bleak retail sales report a few days ago, the US released a couple of worse than expected manufacturing figures yesterday.

Additionally, the FOMC meeting minutes revealed that the Fed has decided to downgrade their growth forecast. Deflation issues are starting to arise, which means the prospect of interest rate hikes is still very very far off.

Today, the US CPI reports are due and, judging from the weak PPI figure for June, the upcoming inflation reports might also miss consensus.

Meanwhile, Australia’s economy is still looking strong as usual. Their recent economic figures, such as the home loans, employment figures, and consumer sentiment reports, printed improvements. It’s pretty clear that the US economy pales in comparison to Australia’s!

Here’s my recipe for success:

Long AUDUSD at .8760, stop loss at .8660, pt1 at .8850 and let my second position run like the wind (100 pip trailing stop)!

Follow me on MeetPips.com!

  • foricks

    OK, Doll, I like where you are going with this and I’m in for a small trade now, but am not seeing the reverse up just yet. I will wait for the turn on the 15 min before bumping up my bet.
    From a commodities perspective, we are seeing gold bounce on either side of 1200. With the $20 drop last night, this looks good for a swing back up. I hope it takes the Aussie with it.
    As always, thanks for the info.

  • foricks

    OK, Doll, I like where you are going with this and I’m in for a small trade now, but am not seeing the reverse up just yet. I will wait for the turn on the 15 min before bumping up my bet.
    From a commodities perspective, we are seeing gold bounce on either side of 1200. With the $20 drop last night, this looks good for a swing back up. I hope it takes the Aussie with it.
    As always, thanks for the info.

  • wolfpup77

    Wonderful trade idea Happy Pip! I think that Aussie has just bounced off a support area around .8680 for the third time over the past week according to its 1H and 4H charts, so your stop @ .8660 is spot on. After today’s massive sell-off of stocks, commodities, and futures, we should see a bounce come next week and risk appetite *should* return, provided that gold rises over the $1,200 psychological price again. However, I feel that .8850 is such a strong resistance level during this time, factoring in all the fundamentals for the Aussie, and therefore I’m deciding to finally close my own long position there that I’ve kept open for almost four weeks running (racked up a nice chunk of rollover interest though…gotta love that 4.5% rate!).

  • wolfpup77

    Wonderful trade idea Happy Pip! I think that Aussie has just bounced off a support area around .8680 for the third time over the past week according to its 1H and 4H charts, so your stop @ .8660 is spot on. After today’s massive sell-off of stocks, commodities, and futures, we should see a bounce come next week and risk appetite *should* return, provided that gold rises over the $1,200 psychological price again. However, I feel that .8850 is such a strong resistance level during this time, factoring in all the fundamentals for the Aussie, and therefore I’m deciding to finally close my own long position there that I’ve kept open for almost four weeks running (racked up a nice chunk of rollover interest though…gotta love that 4.5% rate!).

  • Viper5

    Good luck on trade, you are 15 pips from stop. Hope the gap works for you.

  • Viper5

    Good luck on trade, you are 15 pips from stop. Hope the gap works for you.

  • happypip

    Thanks for the feedback guys! Unfortunately, this trade didn’t work out too well for me now that risk aversion is back in the markets. Oh well, I took another hit on my account but I’m hoping to bounce back this week!

  • happypip

    Thanks for the feedback guys! Unfortunately, this trade didn’t work out too well for me now that risk aversion is back in the markets. Oh well, I took another hit on my account but I’m hoping to bounce back this week!

  • PAL1

    Does that nice inverted H&S on D1 perhaps mean that your take was not so bad after all. Wait and see.

  • PAL1

    Does that nice inverted H&S on D1 perhaps mean that your take was not so bad after all. Wait and see.