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I know it’s risky to take any trades ahead of the EU referendum this week but I can’t help but notice this neat correction setup on AUD/JPY. Think I should go for it?

As you can see from the pair’s 4-hour time frame below, price is making a pullback to the broken support level around the 78.50 minor psychological mark. This coincides with the 61.8% Fibonacci retracement level, which might hold as a ceiling and push AUD/JPY back to the previous lows near 76.00.

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

Stochastic is already turning lower, indicating that sellers might be taking the upper hand from here and ready to fill the weekend gap. I’m considering entering a small short position to catch a potential drop, but I’ll wait for the RBA meeting minutes to be released first.

If you recall, the Australian central bank refrained from cutting interest rates in their latest policy statement and was less dovish than expected. However, Governor Stevens did note that they’re turning their attention to particular event risks *cough, Brexit, cough* and that there was a very large decline in business investment.

As for the Japanese yen, talks of potential central bank intervention weighed on the currency late last week when government officials stepped up their jawboning game. Now that traders don’t seem to be convinced that the BOJ would step in to weaken the yen, the lower-yielding currency might take its cue from risk sentiment again.

I’m thinking that risk aversion could creep in the financial markets and lead to safe-haven rallies in the next few days, although Brexit poll results suggesting a lead in favor of those voting to remain in the UK might turn things around. For now, I’m eyeing a potential short at 78.50 with a stop past the swing high to give me room to cut losses if needed.

Here are the deets:

Short AUD/JPY at 78.50, stop loss at 80.75, PT at 76.25 for a simple 1:1 trade.

I’ll be risking only 0.25% of my account on this setup and I’ll stand ready to close early if risk-taking appears to be gaining traction. Make sure you read our risk disclosure if you’re also taking this trade!


Happy time

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