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Taking a shot on AUD/JPY this week as the recent grind higher looks to be running out of steam. Back to the downtrend?

Downtrend Continuation in AUD/JPY?

AUD/JPY 1-Hour Forex Chart
AUD/JPY 1-Hour Forex Chart

Going with a short-term play on AUD/JPY this week as we can see a few technical arguments for a return to the downtrend. First, after grinding higher from the recent swing low around 69.37, the pair seems to be running into resistance around the 50% – 61% Fibonacci retracement area of the most recent swing move lower (72.60 down to 69.37).

We can also see divergence forming between the higher ‘highs’ in price, while the stochastic is making lower ‘highs’ on the bottom of the chart. These conditions could be drawing in sellers very soon, especially if we see a break of the higher ‘lows’ pattern in price.

From a fundamental perspective, the RBA just cut interest rates  to a record low of 0.50%, and despite the recent expectations and actions of central banks to get more stimulative, it seems that market sentiment seems to be souring as traders were hoping for a bigger stimulative boom. This combination has a good chance of putting pressure on the Aussie, especially if we don’t see a big improvement in the coronavirus story pretty soon.

So with that, I’m scaling a short on AUD/JPY this week given the pick in volatility and choppiness, with a stop above the Fib area and target at the previous swing lows for a nice short-term potential return-on-risk. Here’s what I’m going to do:

Short half position AUD/JPY at market (70.65), max stop at 71.70 with 0.50% risk, max target at 69.55

Short half position AUD/JPY at 71.30, max stop at 71.70 with 0.50% risk, max target at 69.55

I’m only risking 1.00% of my account on this trade and I’ve got max potential return-on-risk of around 2.7:1 if both positions are triggered. I may add to this position if the market moves lower and my second short order doesn’t get filled, and of course, if the global sentiment changes, I’ll look to close this position down quickly.

What do you guys think? Are you watching  AUD/JPY for a potential short position as well? Let me know in the comments section below!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.