With upcoming volatility coming for the Aussie very soon, this support retest on AUD/NZD could be the way to play if the news disappoints.
Support Break Ahead on AUD/NZD?
In case you weren’t aware, the Aussie will likely see a spike in volatility early in the Thursday Asia trading session due to the quarterly Australian jobs report. The expectation is for the net change in jobs to come in below the previous read, set by the most recent Australian business surveys, which Forex Gump covers in his Aussie jobs event preview report.
So there is a strong case for a bearish move in the Aussie soon, and I’d like to take a shot on that for a short-term play with AUD/NZD. I’m choosing the Kiwi as the counter currency mainly as a hedge against any geopolitical catalysts that may appear or general broad risk sentiment moves in general. This is also a hedge against any Chinese economic news, but given that the Aussie is more of a proxy to China than the Kiwi is, continued weak sentiment on Chinese data will likely put pressure on the pair than lift it.
In terms of price action, the pair arguably made a double top in April and May, and after the recent drop lower, it’s testing a strong area of support (1.0550) and holding against the bears so far. My plan is to put up short orders below that area with the daily ATR of around 50 pips as my stop, and target the next area of potential support–the major psychological level 1.0400. Here’s what I’m going to do:
Short AUD/NZD with 0.50% risk at 1.0520, max stop at 1.0575, max target at 1.0410
I’m only risking 0.50% of my account on this trade and I’ve got a potential max return-on-risk of 2:1, but it’s likely I’ll close once I see downside momentum slow if the short orders are triggered. What do you guys think? Let me know in the comments section below!
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