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Risk appetite seems to be returning to the markets as trade war jitters recede, so I’m looking at this potential long Aussie play.

Short EUR/AUD Idea

I already had my one good eye on this triple top setup earlier this week, and it looks like we’re already seeing a break below the neckline support. This confirms that bears are taking control of price action, likely drawn out by stronger than expected Australian jobs data.

EUR/AUD 1-hour Forex Chart
EUR/AUD 1-hour Forex Chart

At the same time, improving risk appetite on easing trade tensions seems to be both lifting the higher-yielding Aussie and forcing the proxy safe-haven euro to retreat.

Zooming out to the longer-term time frames reveals that this pair previously broke below a major rising trend line to signal that a reversal is in the cards. Price just pulled up for a retest recently, but the 61.8% Fib level and area of interest appear to be keeping gains in check.

EUR/AUD Daily Forex Chart
EUR/AUD Daily Forex Chart

Stochastic is also turning lower on this time frame to signal that longer-term bearish pressure is in play. This could be enough to take the pair down to the swing low at 1.5273 and possibly complete a head and shoulders pattern.

I’m still a bit wary of ECB tightening expectations, though, as another set of upbeat reports from the region could be enough to get bulls excited about a rate hike in September. And of course a return in risk aversion on the U.S. trade spat with China could wind up pushing the Aussie back down.

Then again, the RBA sounded a tad more upbeat than expected in their latest policy statement, so there’s also a chance of tightening expectations picking up from their end. The freshly-printed jobs report indicated a 50.9K increase in hiring for June, with an even rise in part-time and full-time employment.

With that, I hopped in a short position at 1.5675 with a wide stop at 1.5925 past the highest Fib and triple top. I set my target just above the swing low and 1.5300 handle, which should give me a 1.4-to-1 R:R. What do you guys think?

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