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The expected bounce came EUR/AUD but never ended as expected despite weak Euro area updates and a dovish ECB monetary policy statement. Closed the trade manually to limit my max loss; here’s a quick review.

EUR/AUD Downtrend Bounce Ahead?

EUR/AUD 1-Hour Forex Chart
EUR/AUD 1-Hour Forex Chart

In my original idea, I was looking to short euros ahead of potential weak European economic updates and another round of dovish commentary from the latest ECB monetary policy meeting. I paired this with the Aussie dollar that recent saw a positive second quarter for Australia’s manufacturing sector, as well as very good data from the retail sector and the trade balance update. This was likely to reduce the odds of another RBA rate cut any time soon as they would likely see how this years interest rate cuts would continue to affect the economy.

I used the downtrend in EUR/AUD as my technical framework to short, scaling in at two month lows (seemingly on its way to retest the 2019 lows) and on a bounce higher if we saw bearish Australian news or data, entering at 1.5950 and 1.6020 for an average price of 1.5990.

Unfortunately, the market didn’t go my way as the economic picture didn’t play out as I expected.  The euro did see weak economic updates for the Euro area and the ECB was very dovish (signaling a cut at the next meeting), but a less dovish commentary on current conditions when Draghi said a “risk of a recession in the region was low” was enough to euro bulls to hop back in the game or at least take profit from the recent run lower. And we did see bearish updates from Australia with weaker manufacturing and services PMI updates, as well as more dovish commentary from RBA Governor Lowe, but this seemed to have become the main driver for EUR/AUD in the past week as it drew in sellers of the Aussie against all of the majors.

So, EUR/AUD has been on a one way race higher, and with no upcoming catalyst that I can see to possibly turn it all around near-term, a break of the original falling ‘highs’ pattern,  and with the new month approaching, I decided to close this one manually today (1.6202) to stave off a max risk loss. 

Total: -212 pips average / -0.88% loss on 1.00% max risk

Looking back, I think the only thing I could have done differently was close  the trade down as it held above the Fibonacci retracement area. It wasn’t quite above the falling ‘highs’ yet on the four hour chart, but it was pretty obvious that the sentiment has shifted with fresh dovish commentary from the RBA and the weak Australian PMI data. Closing around the 1.6150 area would have brought my max loss down to around -0.65%, which in the grand scheme may be worth it to hold onto the trade in case bearish euro sentiment returned. What do you guys think? Did I make the right call to not cut earlier? 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.