Trade Idea: Reversal Pattern on AUD/USD?

I’m watching Aussie pairs ahead of the RBA interest rate statement this week and I’m seeing this head and shoulders pattern forming on AUD/USD. What do you guys think?

The pair is still in the middle of completing its right shoulder right around the .7550 minor psychological level. If that area holds as resistance, price could make a beeline for the neckline around the .7300-.7350 region, and a break lower could send the pair south by an additional 300 pips or the same height as the chart formation.

Stochastic is already indicating overbought conditions and is starting to turn lower, suggesting that Aussie bulls need to take it easy and let the bears take over from here. However, it could all come down to the RBA rate decision as traders are eager to find out how the Australian central bank feels about the Brexit.

AUD/USD 4-hour Forex Chart

AUD/USD 4-hour Forex Chart

As Forex Gump noted in his Trading Guide for the RBA Statement, there’s a good chance that policymakers might just sit on their hands for now since they’ve just cut interest rates back in May. However, RBA Governor Stevens might jawbone the Australian dollar once more because it has been performing relatively well compared to its forex peers. After all, the RBA would like to ensure that domestic inflation and trade activity remain supported despite global economic uncertainties. So far, the latest retail sales and trade balance figures have disappointed.

I’ll also be on the lookout for the release of the FOMC minutes in tomorrow’s U.S. trading session, as this could contain more clues on what the Fed’s post-Brexit game plan might be. Market watchers seem to have priced in the idea that the U.S. central bank isn’t likely to hike interest rates anytime soon so I doubt there’d be any huge surprises from the minutes.

I haven’t set any actual entry orders yet since I plan on watching the RBA statement closely to see what they have in mind and how the Aussie would react. If they do sound cautious or dovish, I’m eyeing a possible short around the .7500-.7550 area with a full ATR stop of at least 200 pips and a profit target near the .7000 handle. I’ll also consider adding to my position if price makes a strong break below the .7300 neckline.

I’ll keep you posted on my trade decisions through my Twitter account and make sure you read our risk disclosure if you’re following me!

Cheers,

Happy time

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  • forzion

    And NFP is in cards as well this week.

    • Aha! Thanks for the reminder! Too bad I decided against taking this trade because the RBA decided to hold. Did you trade this one?

      • forzion

        I do not trade AUD pairs these days because I am working on new strategy and living in Europe so I prefer European and American currencies first. But I am watching this because it can still help me to see how USD behaves in this enviroment.

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