With the ECB decision coming up, I’m looking at this potential short euro play if the central bank does share a less upbeat view. Plus it’s a neat technical setup, too!
EUR/AUD Trade Idea
This pair was previously cruising inside an ascending channel on its daily time frame then recently made a convincing bearish break. This suggests that a reversal from the long-term climb may be in order but that euro sellers could use a bit more back up.
Price has since pulled up to retest the broken channel bottom around the 1.5800 handle, which lined up with the 50% Fibonacci retracement level on the breakout move.
Resistance appears to be holding as more sellers were likely waiting at those levels while stochastic approaches overbought conditions. Turning lower could confirm that the correction is over and that the selloff is set to resume, possibly taking EUR/AUD back to the swing low.
I’m euro bearish because ECB head Draghi has previously acknowledged that recent data has shown slowing momentum since their earlier policy meeting. Downgrades to economic forecasts are eyed and policymakers might even throw cold water on tightening hopes.On the flip side, I’m slightly bullish on the Aussie due to the improving trade relationship between the U.S. and China… or so it seems. It may be a bit too early to tell if both countries can iron out their differences and shake on a deal before the 90-day truce is up, but the optimism could be enough to lift the outlook for commodities and the Aussie.
I’m considering hopping in at market with a stop past the 1.6000 major psychological mark and a target at the swing low. This should give me roughly a 1.6-to-1 R:R and positive carry. What do you guys think?
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