Greenback strength has been a persistent theme in the markets these days so I’m hoping to catch a piece of that action while hedging my other Aussie trade. Check out this AUD/USD setup!
Short AUD/USD Idea
This pair has been moving sideways on its 4-hour time frame and I actually wanted to short right at the resistance around .7730, thinking that the upbeat Australian quarterly CPI reading would take it up there. As it turned out, the .7700 major psychological barrier was strong enough to hold as a ceiling, leading AUD/USD to form a small sketchy double top pattern.
Other inflation reports from the Land Down Under didn’t look too good this week, as import prices fell 1.0% versus the projected 0.7% drop while the PPI showed a meager 0.3% uptick instead of the estimated 0.6% gain. This could continue to put downside pressure on overall price levels, which suggests that the RBA might not be out of the rate-cutting woods just yet.
On the flip side, the U.S. dollar has been getting one boost after another from upbeat medium-tier reports, setting the stage for a potential upside surprise in the advanced GDP release. Analysts are already expecting to see a 2.5% growth figure, much stronger than the earlier 1.4% reading and possibly enough to confirm that a Fed rate hike is indeed happening before the end of the year.
Among the commodity currencies, I’m thinking the Aussie has the most room to fall since it’s been propped up by RBA speculations in the past few weeks. That’s in contrast to the Loonie, which has already been weighed down by dovish BOC rhetoric and crude oil declines, and the Kiwi that’s dealing with RBNZ rate cut expectations.
Here’s my plan:
Short AUD/USD at .7575, stop loss at .7775, profit target at .7375 for a simple 1:1 trade.
I’ll be risking 0.5% of my account on this one, ready to trail my stop to entry once the pair tests the range support at .7450.
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See also: Q3 2016 Trading Performance Review