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This pair broke below its double top neckline recently to signal that a downtrend is in order, but more sellers might be waiting to hop in on this retracement.

Short AUD/JPY Idea

Price also fell below an ascending trend line connecting the lows since September last year, adding confirmation that bears have the upper hand now.

Stochastic is still heading higher, though, so there may be a bit of bullish pressure left. Turning lower from the overbought region could signal that sellers are back in action.

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

I’m bearish on this pair mainly due to risk-off flows stemming from coronavirus contagion fears, which would likely make a dent on Chinese and global growth. In turn, this could keep traders away from commodities and higher-yielding currencies, favoring the safe-haven ones like the yen instead.

However, the relatively optimistic RBA policy announcement is propping the Aussie higher these days as markets are pricing in lower odds of a rate cut anytime soon. I’ve still got doubts that this sentiment could last, though, given how most authorities are adjusting their outlook on account of the virus.

With that, I’m looking to hop in on a short position if the 50% Fib retracement holds. This lines up with the broken trend line, neckline, and an area of interest.

Given the pair’s average daily volatility, a 100-pip stop should be wide enough to weather the usual price moves. I’ll be aiming for the swing low as my target for roughly a 2:1 return-on-risk. What do you guys think?


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