Keeping it simple with my first idea of the second quarter, checking out this textbook technical setup on EUR/AUD.
Triangle Breakout on EUR/AUD?
One the one hour chart above of EUR/AUD, we can see a descending triangle forming, with lower ‘highs’ fast approaching a strong support area between 1.5750 to 1.5800. If it breaks, I’ll start to get interested in a potential short position if there is a bearish catalyst with strong momentum, or if the broken support is retested and holds as resistance, a sign sellers are still in control.
I like this pattern because I’m fundamentally long-term bearish on the euro as economic indicators continue to show weakness in the euro area. It’s largest economy, Germany, has been consistently putting out disappointing numbers, including today’s drop in export orders. As for the Aussie, longer-term I’m bearish the Aussie, but shorter-term I’m bullish as positive sentiment grows due to the U.S.-China trade negotiation story coming closer and closer to deal as time passes by. These factors are likely why we’ve seen EUR/AUD trade lower over the past few weeks, on top of some positive economic updates from Australia (improving trade balance and retail sales data).
So, while I’m almost ready to go short on this trade, I am going to wait and see what comes out of U.S. President Trump’s meeting today with China’s top trade negotiator, Liu He, at 4:30 p.m. (2030 GMT) at the White House. If this event goes smoothly I’ll put up a nibbler order during the Friday Asia session at 1.5700 to get a very small position started. My stop will be the weekly ATR, and my target will be just under the major support area between 1.5300 – 1.5400 that held in 2018. Here’s what I’m doing:
Short half position at 1.5700, max stop at 1.5950, max target at 1.5200
I’m only risking 0.50% of my account on this trade and if it goes my way all the way to my target, I’ve got a potential starting return-on-risk of 2:1. I want to get up to 1.00% max risk eventually, which I’ll likely add if the pair goes my way to hits a one ATR move from entry. What do you guys think? Let me know in the comments section below!
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