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I’m starting this quarter with a breakout setup on EUR/AUD based on my fundamental biases and multiple-time frame analysis. What do you guys think?

Long EUR/AUD Idea

Now that Catalonia has stopped short of officially declaring secession from the rest of Spain, the euro has been able to chuck a source of political uncertainty out the window. This could allow the shared currency to resume trading on fundamentals, which have been mostly upbeat so far.

On the weekly time frame, EUR/AUD is moving inside an ascending channel pattern and has previously broken above a smaller descending channel. Price could set it sights on the top of the channel from here, but it has to break past the short-term consolidation and the mid-channel area of interest.

EUR/AUD Weekly Forex Chart
EUR/AUD Weekly Forex Chart

Zooming in to the 4-hour chart shows that the pair is stuck inside an ascending triangle formation and is testing the resistance around the 1.5150-1.5200 area. A break past this ceiling could be enough to confirm that buyers are ready to push for longer-term gains.

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

This chart pattern is approximately 1,200 pips tall so the resulting breakout could be of the same size. I’m setting a buy stop order past the triangle resistance with a stop below the support and the 1.5000 major psychological level.

Even though the euro zone still has to contend with political uncertainty in Germany, I’m inclined to think that the shared currency can be able to shake this off sooner or later. Merkel and her party are set to begin exploratory talks next week with the FDP and the Greens, and any sign of a coalition being formed could provide more relief for the shared currency.

On the flip side, the Australian dollar could stay one of the weaker-performing currencies as data from its trade BFF China hasn’t been so upbeat. The Caixin services PMI released earlier this week showed a surprise fall from 52.7 to 50.6 versus the estimated 53.1 reading while the numbers on the home front (retail sales, trade balance) also disappointed last week.

Here’s my plan:

Long EUR/AUD at 1.5225, stop loss at 1.4975, initial profit target at 1.5975. I’ll be risking 0.5% of my account on this setup for a potential 3:1 play.



See also: Q3 2017 Trading Performance Review

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