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After breaking consolidation this week, traders went short big time thanks to a few fundie catalysts. Is there still momentum ahead?

GBP/AUD Trade Idea

GBP/AUD 1-Hour Forex Chart
GBP/AUD 1-Hour Forex Chart

In this week’s Weekly Crosses Watch, I highlighted a head-and-shoulders pattern on GBP/AUD that was great for Sterling bears to watch. It looks like it didn’t take long for the neckline to break, and with the help of bearish sentiment on Brexit after British lawmakers instruct May to demand EU to repoen Brexit negotiations, this pair is seeing legit downside momentum at the moment.

And today, we got a fresh global risk-on catalyst after the FOMC holds interest rates and pledges a ‘patient’ approach, leaving in place the easy monetary policy conditions that risk-on traders love.

Now, we’ve already seen a significant move, but I think this could have legs given the fundamental drivers, especially with Brexit negotiations looking like they will continue to run into brick walls. I’m still short bias on the pair, but I’d like to do it with a nibbler position and on a bounce higher. It’s not inconceivable to think a bounce is due after a 300 pip move in two days, and if so, the stories aren’t likely going to change in the next few sessions to sway traders away from the trend lower.

I’m eyeing the previous speedbumps around the 1.8200 handle as a potential resistance area and entry point, and going with a stop around the daily ATR because I’d like to play this for a shorter-term position and hopefully a quick profit. My target will be the major psychological area around 1.8000 for a good short-term potential R:R. Here’s what I’m doing:

Short quarter position at 1.8200, max stop at 1.8350, max target at 1.8000

I’m only risking 0.25% of my account on this trade and if it goes my way all the way to my target, I’ve got a potential return-on-risk of around 1.33:1 that could be hit in the next few sessions. If I don’t get triggered by the end of this week, though, I’ll cancel my orders. What do you guys think? Let me know in the comments section below!

 

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