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I’m seeing a major correction taking place on EUR/AUD, but I think the selloff is set to resume pretty soon. Here’s where I’m planning to short.

EUR/AUD Trade Idea

I’ve got a falling trend line visible on the 4-hour chart below but this resistance level actually extends all the way back to the start of this year, which suggests that it’s a really strong ceiling. Price recently broke below the 1.4600 major psychological level then dipped close to 1.4100 before showing signs of a pullback.

Applying the Fib tool on the latest swing high and low shows that the broken support area is somewhere between the 38.2% and 50% retracement levels. A higher pullback to the 61.8% Fib or the 1.4700 handle near the longer-term falling trend line could also be possible.

EUR/AUD 4-hour Forex ChartEUR/AUD 4-hour Forex Chart
EUR/AUD 4-hour Forex Chart

With that, I’m looking to scale in my short entries near 1.4600 and 1.4700, setting my stop just past the trend line and slightly above the 1.5000 major psychological resistance to give myself room to cut losses in case an upside breakout happens. I’ll aim for the previous lows around 1.4125 first but I’ll be ready to either add to my position or adjust my target lower if bearish momentum picks up.

Euro zone economic reports haven’t been all THAT bad, as industry PMI readings have shown improvements while CPI estimates have posted small gains. Still, the region has a list of other problems to deal with, such as Brexit-related uncertainties and its troubled banking sector. This contrasts with the Australian economy, which seems to be turning a corner on mostly positive data (except for employment) and a slightly upbeat RBA rhetoric.

Here’s what I’ve got:

Short EUR/AUD at 1.4575 and 1.4675 (0.25% risk each), stop loss at 1.5025, profit target at 1.4125 for a potential 1.25-to-1 R:R. 

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See also: Q3 2016 Trading Performance Review

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