Aha! I’m seeing a nice opportunity to jump in the AUD/USD downtrend with this simple forex retracement setup. Will the trend be my friend?
As you can see from the 1-hour chart below, the pair has been trading below a descending trend line that’s been holding for more than a month. Right now, price is pulling back to that trend line, which lines up with a broken short-term support at the .7350 minor psychological mark and the 50% Fib. At the same time, stochastic has already reached the overbought region, indicating that the correction might be over and that the selloff could carry on.
Falling gold prices could keep dragging the positively correlated Australian dollar lower against its forex rivals since this would mean lower revenues and investment in the Land Down Under’s mining sector. In addition, this week’s Chinese equity market selloff revealed that the worst isn’t over for the world’s second largest economy and Australia’s number one trade partner.
I won’t be setting any entry orders just yet, though. As Forex Gump mentioned, we’ve got a huge event risk coming our way in the form of the FOMC statement and I’m thinking that this might spur a lot of volatility. If this pair is still right around my entry area after the event and if the Fed announcement confirms that they’re still on track to hiking interest rates, I’ll short around .7350 with a stop past the latest swing high at .7450 and an initial profit target at the previous lows near .7250.
On the other hand, if the FOMC statement leads to a sharp break above the short-term trend line, I’ll still be on the lookout for a chance to short on a much larger pullback based on the 4-hour or daily forex time frames. What do you guys think?
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