NFP Straddle Setup for AUD/USD

Here’s my first trade idea for the year! What do you think of this straddle setup for AUD/USD before the NFP release?

On its daily time frame, it’s pretty clear that this pair is currently testing a major support area around .8850 to .8900. It bounced from this area a couple of times in the past few months but it seems ready to make a break for it this time, as a bearish flag has formed right there!

audusd

A few fundamental factors, such as weak data from China and jawboning from the RBA, support a downside break but I’m still wary about the upcoming U.S. NFP release. After all, analysts are expecting slightly weaker jobs growth for December. If the actual figure comes in way below expectations, then we might see a quick dollar selloff.

With that, I’m considering setting buy orders above the consolidation pattern and sell orders below the previous lows. What do you guys think?

Happy time

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  • doniks

    I think you are going to make money today

    • Happy Pip

      That NFP release was a shocker! Did you catch any pips?

  • Mandy

    Hi Happy Pip in,

    Good thoughts. Infact I lost the trade 2 days back on the AUD/USD.

    I went short on AUD/USD and set the targets as .8950 Stop loss and limit of .8835. I don’t know what went wrong and I lost. Now I can see the current price levels are somewhat near to my limit . Which means I should have put my stop loss at a higher level say 60-80 pips away?
    I need your thoughts on the AUD as the stories are it is going to weaken and Kiwi is going to be strong.
    I want to place another order on AUD/USD and wish to know the advice on the correct setting levels?

    Thanks,

    • Happy Pip

      Hi Mandy! Yep, you probably set your stop loss too tight and didn’t allow for enough “breathing room” for the trade. How about taking a look at the pair’s ATR (average true range) to determine how large your stop loss should be? Another factor to take into consideration is how long you plan to hold on to the trade. For AUD/USD, I generally set a stop that’s around 100 pips if I’m holding on for a few days. Hope this helps!

      • Mandy

        Thanks for the valuable inputs. Yes I need to give more space for the stop loss. Around 100 pips looks good to hold the trade for few days.
        Is it good time to go short on AUD/USD and AUD/NZD ? or any other trade advice for this week?

        thanks

        • Happy Pip

          Anytime! I’m still scouring the charts for a nice setup but I’m liking a short on the yen pairs at the moment, possibly on a retracement on CAD/JPY. I’ll keep you posted if I have a new trade idea. See you around and thanks for checking out my blog!

  • Patrick

    Oh no! I currently have a long around this area because I was thinking of a Bullish Divergence… but it seems your bearish flag is right!!!

    You think if i put an order below the flag with double the size of my current long position it can save me!?

    • Happy Pip

      Hey I think that bullish divergence panned out! Thanks to the weak NFP, of course. Were you able to catch pips?

  • How to interpret the positive ADP release in the context of your plan?

    • Happy Pip

      Well the ADP is generally considered a “poor” predictor of the NFP so I usually take that report with a grain of salt. What I’m more interested to find out is whether the weak report was just a weather-related fluke or if it’s likely to happen again for January. Check out Forex Gump’s latest breakdown on the NFP: http://www.babypips.com/blogs/piponomics/dec-us-nfp-breakdown.html

  • Phil Jones

    Since the FED announced a start, albeit small, to QE I think a lot of us expected to see the dollar rise. Given the way it moved when QE was hinted at earlier in the year, the real thing should have done something. In reality, it seems to have been met with indifference. Then again, the real movers in FOREX were likely closing the books on 2013 or too high on Dom Perignon to notice.

    The reducing trend in unemployment in the US has been good and that trend itself carries a lot of weight. However, no one can predict the waves created by NFP and Ive learned to ignore anyone who claims they can.

    That the USD will rise against the AUD is a pretty safe bet but the waves between here and there are for anyone to guess. Unless NFP initiates a new trend then the tendency is to return to around its former value within 24 hours.

    Anticipating a trend change is not the way to go for me. I want to see the change and see it confirmed before putting money down. For AUD/USD, the pair has a lot of space to move in especially when looking at the longer term charts.

    • I think the trend trade is what it is about. I have gone long the Aussie, but expect it to be a short trade as fundamentally the RBA is trying to discount the Aussie

      • Phil Jones

        wow! and congratulations! The NFP was a shocker even if unemployment ticked down a notch.

        Still, if you were long the Aussie then well done.

        Erm! Couldnt lend me a few dollars until next payday could you? 🙂

      • Happy Pip

        Good point! I’m also short biased on AUD for the long term but bullish in the short term because of the NFP weakness. Congrats on your trade!

      • Mandy

        Correct Derek, RBA is bent to bring the Aussie down as it thinks it is overvalued.

  • Will

    Hi There,

    i think you could be wrong either way, NFP is a tricky beast would wait until its over then when the dust settles reenter. Could spike or drop then reverse triggering one of your orders on a loser. Agree with a mildly bearish outlook but would wait for a retrace to 91- 92 area then look for shorts

    Good Luck Happy Pip

    Cheers

    Will

    • Happy Pip

      Yikes all right, thanks for sharing your thoughts! A pullback to the .9100-.9200 area looks like a better option when it comes to reestablishing an AUD short position. Cheers!

  • emre

    I still hope this pair will go bullish.

    • Happy Pip

      Looks like it made a strong bounce after the NFP release. Are you in a long trade right now?