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Risk aversion seems to be back in full swing these days so I’ve hopped in this range breakdown setup on AUD/JPY. How low do you think this can go?

As my buddy Cyclopip pointed out, this pair was stuck in a 200-pip range since last month but it looks like downside pressure has been building up. For one, economic figures released from China earlier this week were far from impressive, as the world’s second largest economy indicated a drop in fixed asset investment and retail sales, which could translate to weaker demand for Australia’s raw material commodity products.

Aside from that, prevailing financial market uncertainties surrounding the upcoming EU Brexit referendum and this week’s batch of central bank events are discouraging traders from taking on more risk. It was only a matter of time before this floor on AUD/JPY gives way… so I decided to short as soon as price closed significantly below the 78.50 level.

AUD/JPY 4-hour Forex Chart
AUD/JPY 4-hour Forex Chart

I’ve placed a wide stop past the range resistance at 80.50 for this one, giving the trade enough leeway in case volatility picks up ahead of the BOJ statement on Thursday. There’s still some talk of potential central bank jawboning, especially since policymakers seem uncomfortable whenever the yen rallies too sharply, so I’ll give myself room to cut this position if the pair suddenly pops higher.

In case the BOJ refrains from talking down their currency this week, I’m thinking this pair could be in for more downside, possibly until the next key support area visible on the weekly time frame. I’m hoping it gains more bearish momentum in the next few sessions so I can roll my stop down and protect my profits.

AUD/JPY Forex Weekly Chart
AUD/JPY Forex Weekly Chart

I’ve set my ultimate profit target at the 74.75 level, just slightly above the 74.50 minor psychological mark, but I’ll be ready to close early or lock in some gains along the way. Never know when risk appetite is gonna peek back in the markets!

With this setup, I’m keeping it simple with an approximately 1:1 return-on-risk with 0.5% of my account on the line. Here are the details:

Short AUD/JPY at 77.85, stop loss at 80.75, profit target at 74.75.

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

Risk Disclosure
Pipcrawler’s Q1 2016 Blog Trading Performance
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