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For my first trade idea this year, I’m looking at this textbook retracement setup on AUD/USD. Think price could pull up to the channel resistance before resuming its drop?

AUD/USD Trade Setup

As I’ve shared with y’all in my Comdoll Trading Kit for the week, I’m seeing a descending channel on AUD/USD’s 4-hour time frame and a potential correction to the resistance. Applying the handy-dandy Fib tool on the latest swing high and low shows that the 38.2% level coincides with the .7300 major psychological level while the 61.8% Fib is closer to the channel resistance.

I’m also seeing higher highs in stochastic and lower highs in price, creating a bearish divergence that adds confirmation that the pair would likely head back south soon. However, the oscillator has yet to turn lower so a higher retracement to the area of interest between .7350-.7400 could be in the cards.

AUD/USD 4-hour Forex Chart
AUD/USD 4-hour Forex Chart

Pip Diddy mentioned in his U.S. session recap that traders ain’t exactly feelin’ the love for the Greenback at the moment since the FOMC minutes showed a split among the members when it came to the timing of rate hikes. For some, a faster pace of tightening is warranted since inflation is likely to hit their 2% target soon while the labor market continues to improve. Others think that it would be prudent to go for gradual adjustments to account for the uncertainties in Trump’s fiscal policy changes.

Because of that, dollar bulls might ease up on their positions for the next few sessions before the overall trend resumes. At the end of the day, the Fed remains the only major central bank with a hawkish stance so demand for the dollar could be sustained. On the other hand, Australia might be facing a bleaker outlook for iron ore and its other commodity exports as China recently reported a large capital outflow, leaving fewer funds invested in local infrastructure and businesses.

I haven’t set any entry orders yet since I’m still waiting to see how the U.S. NFP report might turn out. A stronger than expected read could remind traders that Uncle Sam is way ahead of the pack while others are facing economic headwinds, thereby reviving dollar gains. If I’m able to enter, I’m looking to set my stop past the swing high then aim for the previous lows near the .7150 area. Don’t forget to check out our risk disclosure if you’re trading this one, too!



See also: Q4 2016 Trading Performance Review

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This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.