I’ve been scouring the charts for a bullish dollar play, and I think I’ve spotted a good deal on AUD/USD’s 4-hour chart. Take a look at these correction levels I’m watching!
AUD/USD Trade Idea
The Greenback is finally taking a break from its post-election climb, giving AUD/USD a chance to pull back to its broken support levels. I’m seeing a nearby area of interest at the .7485 level, which lines up with the 38.2% Fib on the latest swing high and low, and a potential correction all the way up to the 61.8% Fib or broken rising trend line.
Stochastic has already made its way into the overbought territory, which suggests that the correction could be completed soon and that sellers could take over. Once that happens, the pair could head south to the swing low near the .7300 handle or lower.
I’m keeping a bullish bias on the dollar mostly due to the very strong likelihood of a Fed interest rate hike next month. Head honcho Yellen pretty much confirmed that this tightening move is in the bag, especially since policymakers might need to make room for increased fiscal stimulus without letting the economy overheat.
As for the Australian dollar, economic reports from the Land Down Under haven’t been all that impressive while the recent slide in gold prices hasn’t been doing it any favors either. Earlier today, Australia reported a 4.9% quarterly slump in construction work done, far worse compared to the projected 1.5% drop.
On top of all that, fears of capital flight from China due to the government’s persistent efforts to devalue the yuan might dampen business and investment activity in the world’s second largest economy, which happens to be Australia’s trade BFF. Any way you slice it, things aren’t looking too sunny for Australia at the moment while the U.S. economy appears to have much brighter prospects.
Here’s my plan:
Short AUD/USD at .7475 and .7575 (0.25% risk each), stop loss at .7725, initial profit target at .7325. This should give me a 1:1 return-on-risk based on my average entry price, but I’ll consider adding to my position and trailing my stop down if the pair breaks below .7300.
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See also: Q3 2016 Trading Performance Review
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