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AUD/JPY seems to have broken above the resistance zone around 83.00 as it reached a high of 83.35. Since I wanted to be out of the trade once 83.00 breaks, I placed a relatively tight stop, which got hit.

Apparently, Aussie bears were disappointed that China didn’t implement a rate hike over the weekend. Instead, they just increased their reserve ratio in hopes of mopping up excess liquidity in the markets.

AUD/JPY 4-hour Chart

Maybe they’re saving all their rate-hiking for next year because, as Forex Gump mentioned, the Chinese central bank is planning to shift to a more “prudent” monetary policy.

Oh well, I guess I could say I still haven’t gotten the hang of trading cross pairs just yet. Maybe I need to ask Cyclopip for help!

Trade Idea: 2010-12-10 00:15

AUD/JPY 4-hour Chart

Since my NZD/USD trade is still open, and because I didn’t want to double my exposure to the USD, I tried to look for a comdoll trade involving the yen instead.

Today, I spotted an interesting setup on AUD/JPY. Price has been slowly creeping up to 83.00, where a significant resistance area lies. This level has held up quite well and has rejected price sharply in the past, so I think it’s worth a shot.

Even though it’s a countertrend trade, I’m thinking of shorting the pair at the psychological handle. It’s simply too tempting to resist (just like caramel apples)!

Since I’ll be going against the grain with this one, I’m taking on a fairly small position. Also, I’m setting my stop very tight, just 25 pips above my entry point. What makes this trade extra appealing is the attractive profit potential it offers.

My first PT is set at 82.00, the next psychological handle, while my 2nd PT is at 81.00, where the price looks like it could meet the rising trend line. I’ll take that 1:4 risk-reward ratio anytime!

This setup lines up nicely with my bearish bias for the Aussie. This week, the RBA decided to keep rates on hold at 4.75% as the central bank officials weighed the challenges to the Australian economy. It looks like they’re expecting a downturn in exports after hearing the news that China still plans to tighten its monetary policy further.

According to the economic calendar, a bunch of Chinese data are scheduled for release tomorrow. As always, the Asian superpower is expected to post stellar figures, but that would only provide more reason for their central bank to hike rates. As Forex Gump pointed out, slower demand from the Chinese economy could be damaging for Australia.

So here’s what I’ve got in my bag of treats:

Short AUD/JPY at 83.00, stop loss at 83.25, profit targets at 82.00 and 81.00. Because I still have another trade open, I’ll risk a smaller part of my account on this one.

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