The Aussie dollar may see some bearish action this week with the latest employment update from Australia coming soon, so I’m checking this Fib short setup on AUD/NZD.
Short-term Resistance on AUD/NZD?
On the forex calendar ahead, we’ve got the latest jobs numbers coming from the Land Down Under. And based on Forex Gump’s analysis (Event Preview: Australia’s Jobs Report (October)), there’s a chance we could see weakness; possibly a rise in the unemployment rate and/or the underemployment rate, as well as another round of negative job growth.
If this is the case, we could see weakness in the Aussie, especially if the net job changes comes in below expectations of -26K and/or a bigger-than-expected jump in the unemployment rate.
But there’s also a chance of a positive surprise based on the latest leading indicators, and if so, I’m still bearish on the Aussie longer-term given the outlook from the RBA of prolonged weakness in the employment sector.
It’s also likely some pressure may come from Australia’s relationship with its largest trading partner, China, which has been on the rocks in recent weeks (China slaps ban on Victorian logging imports, China to Halt Key Australian Imports in Sweeping Retaliation)
I’m taking this view and playing it against the Kiwi, which seems to have been lifted by a shift in interest rate speculation, recently moving away from expectations of a rate cut in 2021. This has lifted the Kiwi against all of the majors, and there may still be legs in that move until we get a fresh catalyst otherwise.
So, I’m shorting AUD/NZD for a short-term trade as the jobs data may spark up some volatility, and I look to so if the pair pops higher on the event and retests the upper bounds of the Fibonacci retracement area marked on the chart above. This area also aligns with previous support/resistance behavior around the minor psychological area of 1.0650.
My stop will be using the daily ATR as a guide, and my max target is the previous swing. Here’s what I’m doing:
Short half position on AUD/NZD at 1.0650, max stop at 1.0720 with 0.50% risk, max target at 1.0550
I’m only risking 0.50% of my account and I’ve got a solid short-term potential return-on-risk of over 1.66:1. If the data / reaction to the data does not play out as expected, I’ll be sure to cut the trade/orders away quickly and move on to the next one. If my orders are not triggered by the end of the week, I will cancel them and move on to a new idea.
Be sure to manage your risk and avoid overexposure.
What do you guys think? Are you watching AUD/NZD for a potential short position as well? If so, what’s your entry strategy and risk tolerance? Let me know in the comments section below!
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