Volatility picked up early in FX thanks to the latest Coronavirus updates, bringing AUD/CAD to a level that traders may take to play the recent trend lower.
Fib Pullback on AUD/CAD
AUD/CAD bears have been on a tear since mid-December 2019, with a recent fresh move lower in February after peaking around the 0.9000 handle to its current trading area around 0.8750. But today we’re seeing a bounce in the pair, likely driven by weak oil prices to hurt the Loonie, again on sentiment that the latest surge in Coronavirus cases this weekend is a signal of possibly weak oil demand in the near future.
How long will this sentiment last? I don’t know. It’s not often we see a pandemic, which this has not been classified as just yet, but I think in the short-term (i.e., this week’s time frame), this past weekend’s news may be fully priced in. And unless we get more disturbing news on that front, the recent bounce higher may be a short-term opportunity to play the longer-term trend lower.
So this week, I’m looking to short AUD/CAD on this bounce but at a little bit higher price as we may still see further volatility. And I like this trade mainly for the upcoming Chinese PMI numbers. It’s likely not going to be good given the damage the Coronavirus is doing to China, which means the Aussie may trade lower next week if that’s the case. My stop will be a little over half of the weekly ATR (around 120 pips) to give the trade room to breathe, while my max target will be just under the recent swing low for a solid short-term potential return-on-risk. Here’s what I’m going to do:
Short half position AUD/CAD at 0.8805, max stop at 0.8875 with 0.50% risk, max target at 0.8705
I’m only risking 0.50% of my account on this trade and I’ve got max potential return-on-risk of around 1.33:1. I may add to this position if triggered and the upcoming data contributes to the bearish argument, and if not, I’ll look to close the trade down manually, especially if oil prices continue to take a dive. If this trade is not triggered by the end of the week, then I will close down the short orders ahead of the weekend.
What do you guys think? Are you watching AUD/CAD for a potential short position as well? Let me know in the comments section below!
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