Taking a shot on AUD/JPY this week for a swing play as the pair starts to breaks classic consolidation pattern. Will traders jump in to give the pair fresh legs to move higher?
Symmetrical Triangle Break on AUD/JPY?
Fundamentally, I’m relatively bullish on the Aussie over the rest of the majors at the moment thanks better-than-expected sentiment updates from Australia (e.g., Australia’s flash manufacturing PMI up from 44.0 to 49.8, Australia’s flash services PMI up from 26.9 to 53.2). We’ve also got relatively positive rhetoric from the RBA recently, which lowers the odds of more stimulative actions ahead.
I’m taking the stance on the Aussie against the Japanese yen as Japan continues to update us with disappointing economic and sentiment numbers (Japanese flash manufacturing PMI fell from 38.4 to 37.8 vs. 39.5 forecast, Japan’s May job availability gauge logs biggest drop in 46 years, jobless rate hit three-year high of 2.9%).
It’s likely these recent updates will play a factor on how traders anticipate the upcoming policy statements from both the BOJ and RBA in July, i.e. continue to favor the Aussie over the yen for the next week or two.
Of course, AUD/JPY price action is also heavily influenced by broad risk sentiment, and with the odds of another global economic shutdown pretty low despite the rise in covid cases, I think the Aussie will continue to be favored a bit more than yen at the moment. Of course, that can all shift on a dime with a negative news report, but for now, I’m staying long biased on AUD/JPY.
With that said, I think volatility will pick up in the pair over the next couple of weeks with the latest monetary policy decisions from both countries ahead, so I’m going to put on a nibbler position on now for a swing to longer-term trade to play my bias.
I’ll be going in at market as the pair just broke above the symmetrical triangle pattern marked on the chart above, which could draw in other technical traders if the break sustains over the next week or so.
For my stop, I’m using the weekly ATR as my guide, placing my loss exit point below the mid-June swing lows, and my target will be the next major psychological level above the recent swing high for a solid starting potential R:R. Here’s what I’m doing:
Long full position AUD/JPY at market (74.55), max stop at 72.00, max target at 80.00
I’m only risking 1.00% of my account and I’ve got a solid short-term potential return-on-risk of over 2:1 to start. I plan on adding to this trade/rolling up my stops if the pair breaks above the previous swing high to maximize my potential gains/reduce risk, if the market themes down the road still dictate a bullish case.
Be sure to manage your risk and avoid overexposure.
What do you guys think? Are you watching AUD/JPY for a potential long position as well, or do you see a drop coming soon? Let me know in the comments section below!
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