Checking out AUD/CAD this week as the pair gets back to its pre-pandemic levels. Will this area serve as a selling point?
Is it prime to ride recent momentum for an upside breakout? Or are we headed back into range bound behavior?
AUD/CAD Resistance Reversal?
What a ride it has been for AUD/CAD over the past month due to the coronavirus pandemic, only to return to pre-crisis levels, now retesting the bottom of the 2019 range between 0.8900 – 0.9100. The question now, of course, is where to next?
Well, I’m leaning towards a possible reversal back to the downside on this retest on a couple of arguments. First, we may see some bullish action in the Loonie after been sold aggressively with oil due to the oil price war. Now that the war has ended with the production cut deal this weekend, the odds are low of further oil selling for now, as well as its bearish influence on the Canadian dollar.
For the Loonie, we do have the latest monetary policy statement from Bank of Canada coming to potentially bring some volatility, but it’s likely no moves will be made for now after the emergency rate cuts and stimulus initiated this past month.
Second, the Aussie has been on a pretty strong rally as the extreme negative sentiment faded this past week, but that may not be the same case this week with top tier economic data from both Australia and China likely to give negative economic updates and potentially sink the Aussie.
With those two events in mind, I am going to go with a small nibbler position at current levels to get ready for a potential move. My max stop will be above the 2019 range and more than the daily ATR of around 160 pips, while my target will be 0.8500 for a solid short-term potential return-on-risk. Here’s what I’m doing:
Short half position AUD/CAD at market (0.8865), max stop at 0.9160 with 0.50% risk, initial target at 0.8505
I’m only risking 0.50% of my account on this trade, and I’ve got a potential return-on-risk of around 1.2:1 to start. I will look to add to this position /go for a bigger target depending on what we get this week from this week’s data to increase my profit potential, as well as cut the trade early if the events do not go my way.
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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