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.
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.
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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