Going with a simple technical short on AUD/CAD ahead of what could be a short-term bullish catalyst for the Canadian dollar.
Fib Short on AUD/CAD
I’m going short-term bullish on the Canadian dollar this week on what could be a better-than-expected Canadian jobs number tomorrow. The latest business sentiment according to the latest Ivey Purchasing Managers Index that showed a rise in employment to a nine-month high, potentially signaling a positive number from the government’s read on employment this Friday.
I’m pairing this with the Aussie that has seen a recent string of terrible economic updates and commentary from the RBA that interest rates could go even lower. The Aussie has been pretty resilient in this environment, but I think that’s a short-term boost from the recent round of U.S. dollar weakness, or possibly this was all priced in way ahead (maybe a combination of both). I also like shorting against the Aussie as it somewhat takes away influences from global risk sentiment given that they are both commodity currencies and relative “high-yielding” assets, and finally because of the interest rate differential that does favor the Loonie over the Aussie by 50 basis points.
From a price action standpoint, I already pointed out the Fib setup in this week’s Weekly Crosses Watch, but for those who missed it, the pair has been bouncing higher after a solid run lower from 0.9600 to 0.9200 from April to May. And it looks like the sellers have stepped in with conviction this month around the 0.9400 handle, which is right around the 50% Fib retracement area of the recent downswing. It’s already moving lower from this area so momentum traders may hop in now there’s a confirmation of a reversal forming.
With all that in mind, I’m taking a nibbler position at current levels, my stop is roughly two daily ATR away from my entry, and my initial target is the recent swing low for a pretty decent short-term potential return-on-risk. Here’s what I’m doing:
Short AUD/CAD at market (0.9329), max stop at 0.9430, initial target at 0.9200
I’m only risking 0.50% of my account on this trade because of the Canadian jobs event ahead, and I’ve got a potential max return-on-risk of 1.27:1. I’ll look to add further to get up to my max risk of 1.00% if the market does go my way, and I won’t hesitate to cut if we get a very bad jobs number from Canada and the market sells off the Loonie. If the number is good but the Loonie sells off, I may reassess to potentially add my remaining position above current levels if the outlook makes sense.
What do you guys think? Let me know in the comments section below!
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