Trade Idea: AUD/USD Channel Break and Pullback

Dollar bulls have been flexing their muscles these days now that Fed Chairperson Yellen pretty much showed her hawkish cards during the Jackson Hole Symposium so I’m looking at this potential long USD setup.

Short AUD/USD Trade Idea

This pair just broke below its longer-term channel support visible on the 4-hour time frame, signaling its intention to head further south. Price seems to be pulling up, though, possibly ready to make a retest of the broken support around the .7600-.7650 area.

AUD/USD 4-hour Forex Chart

AUD/USD 4-hour Forex Chart

Zooming in to the 1-hour time frame shows that this area of interest lines up with a short-term descending channel resistance around the 50% Fibonacci retracement level. Stochastic is already indicating overbought conditions on this time frame, which means that sellers are gearing up to push the pair lower again.

AUD/USD 1-hour Forex Chart

AUD/USD 1-hour Forex Chart

I’m bearish on the Aussie mostly because of the RBA’s decision to cut interest rates earlier this month and the slowdown in China’s property sector, which could dampen demand for Australia’s steel and iron ore exports. This could keep the Australian central bank ready to lower rates once more, in contrast to the U.S. central bank which is trying to figure out when to hike interest rates.

We’ve still got a bunch of catalysts lined up this week, though, so I’m gonna give this pair enough leeway for additional volatility. Chinese manufacturing PMI and Australian retail sales are due on Thursday while the U.S. non-farm payrolls report is up for release this Friday.

Here’s my plan:

Short AUD/USD at .7625, stop loss at .7775, profit target at .7475. I’ll risk 0.5% of my account on this setup and go for a simple 1:1 return-on-risk.

What do you guys think of my trade idea? As always I’d love to get your feedback and market thoughts. And don’t forget to check our risk disclosure if you’re following me!

Cheers,

Happy time

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