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The Aussie could see a lot of action this week since we’ve got a top-tier market catalyst in the form of the RBA interest rate statement. Check out this setup I’m watching on AUD/JPY!

AUD/JPY Trade Setup

The pair formed lower highs and higher lows, creating a symmetrical triangle formation visible on its 4-hour forex chart. Price is currently testing support around the 86.50 minor psychological level and seems to be making a bounce, possibly setting its sights back on the triangle resistance at the 87.00 handle. At the same time, stochastic is edging out of the oversold area to suggest that Aussie bulls are taking over.

AUD/JPY 4-hour Forex Chart
AUD/JPY 4-hour Forex Chart

I’m not too sure about hopping in at market with the RBA decision set to take place in a bit, though. As Forex Gump noted in his Trading Guide, central bank officials could blame Aussie strength for the recent slump in trade activity and revert to a less upbeat stance. If the RBA signals that they’re still open to the idea of cutting interest rates later on this year, AUD/JPY could break below the triangle support and fall by around 300 pips or the same height as the chart formation.

On the other hand, if the RBA chooses to reiterate its earlier views that further easing might no longer be necessary, AUD/JPY could jump to the triangle resistance and attempt to break higher. But judging from the Aussie’s previous reactions to RBA statements, it looks like the initial move gets faded around the end of the Asian trading session. If that’s the case, I’ll be ready to take a short position around 87.00 back to the triangle support.

I haven’t set any entry orders yet since I want to wait and see how the actual statement turns out. Don’t forget to check out our risk disclosure if you’re trading this one, too!

Cheers,

Happy

See also: Q4 2016 Trading Performance Review

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.