Yesterday the currency bulls had a party in the streets when the Fed announced its lower economic growth forecasts and additional stimulus. As a result, AUD/USD tested its highs near the 1.0550 handle. I guess it shouldn’t surprise me then, that AUD/USD was also dragged by news from the U.S.
It wasn’t good news this time around though. Apparently, now that the Fed’s decision is over, investors are at the edge of their seats over the U.S. Fiscal Cliff. And since there wasn’t any major news on the issue, the Aussie bulls found it easy to take profit from the strong rally. Heck, AUD/USD even visited the 1.0500 area!
A couple of things that I learned from this trade: First, technical setups, no matter how inviting, shouldn’t be the only basis of our trade. This brings me to my second lesson, which is to carefully study what’s driving price action. If I had looked more closely at the news, maybe I would’ve picked up that the high-yielding currencies are in for profit-taking.
Last but not the least, always, ALWAYS watch your trades closely. Whether it’s a day trade or a position trade, we should always be ready with contingency plans and trade adjustments.Right now I’m looking at a 35-pip loss and a 0.50% dent on my account. But hopefully, I apply these lessons in my next trades! How about you? Were you able to take advantage of yesterday’s price action? Feel free to share!
Trade Idea: 2012-12-13 1:18
Thanks to the recent FOMC statement, I’m feeling dollar bearish today! The Fed just announced that they’ll be linking their interest rates to the U.S. jobless rate while expanding their asset purchases at the same time, which means a longer period of low-interest rates and lower demand for the Greenback. And don’t get me started on the approaching Fiscal Cliff!
Besides, I have this strong feeling that the Santa Claus Rally started early this year after the eurozone made progress in solving its debt crisis. With one of the most pressing market issues this year somewhat out of the way, we could see a risk-on environment until the end of 2012.
As for technicals, I’m seeing a potential retracement on AUD/USD’s 1-hour chart so I’m planning on going long at the 38.2% Fib. That’s close to yesterday’s low and appears to be an area of interest, too. It’s also in line with the rising trend line right there!
Here’s my plan:
Long AUD/USD at 1.0550, stop loss just below 1.0525, initial profit target at 1.0600.
I’ll be risking 0.5% of my account on this trade and, if you plan to tag along, do check out our risk disclosure.
What do you think of this trade idea of mine? I’m hoping to score a few more wins before 2012 comes to a close!
Have fun and good luck trading this week, friends!
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