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AUD/CAD has been on the watchlist for the past couple of weeks, and I think it’s ready to go live as resistance held at a major area of interest.

AUD/CAD Trade Idea

AUD/CAD 4-Hour
AUD/CAD 4-Hour

In this week’s Crosses Watch, I looked at AUD/CAD again as it retested a major support level that held through out December before being broken hardcore in the new year. After a couple of days, it looks like sellers took control of this pair and the trend lower may be resuming with price already moving lower.

Besides the textbook technical short setup at falling ‘highs’ and broken support area, I like this setup because I am fundamentally bearish on AUD/CAD–mainly bearish on the Aussie.  This is especially the case after the latest business sentiment indicators for Australia are turning lower, increasing the chances we’ll see weak economic data later on. Also, it’s looking pretty bad for Australia’s housing market with prices falling and lending set to tighten further.

As far as the Canadian dollar, the economic data looks fairly balanced, but what tips it towards the bullish bias for me over the Aussie was the surprise tick higher in Canada’s Ivey PMI and the recent rally in oil (one of Canada’s major exports)from around $43/barrel at the end of December to trading around the $52/barrel area.

With the fundie and price action arguments made for a short play, I’m going to go ahead with a starter position at market and I’m using a wide stop of more than one weekly ATR to limit my max risk. Here’s how I’m tackling this trade:

Short at market (0.9506), max stop at 0.9725, max target at 0.9100

I’m only risking 0.50% of my account on this trade and if it goes my way all the way to my target, I’ve got a potential return-on-risk of around 2:1. What do you guys think?


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