Back on my short Aussie bias to kick off the new year, this time against the Loonie in a familiar bearish price pattern. Check it!
Falling Channel in AUD/CAD
Those who have been following me for a while, Australia is low in my fundamental ranking because of low inflation conditions and wage growth, and the likelihood we won’t see tightening from the Reserve Bank of Australia anytime soon.
On the opposite end of the spectrum we have the Canada, which has seen enough hawkish data that speculation is appropriate and growing that we could see an interest rate hike in 2018. We’ve got a BOC meeting coming in a couple of weeks, so it’s possible this sentiment could be priced in ahead of that event. Besides that, oil prices (one of Canada’s largest export industries) has been on a tear higher, which could support the Loonie in the short-term.
From a price action perspective, the pair has been in a falling channel pattern for the better part of 2017, and the market is now testing the falling highs and the stochastics coming out of overbought conditions. It’s possible that this retest could be drawing in some sellers, which includes me, so I’m going to short to go with the trend at what could be a relatively good price. Also, my main man Big Pippin pointed out a short-term bearish pattern on the pair that could also draw in some sellers.
My stop will be one weekly ATR which should give the trade plenty of breathing room, and my initial target will be the previous swing lows seen at the beginning of December, which was also a strong support level at the end of 2016. Here’s what I’m doing:
Short half position AUD/CAD at .9823, max stop loss at .9960, initial target at .9600 for an initial potential 1.75:1 return-on-risk
I’ll be risking only 0.5% of my account on this position and as usual, I’ll look to make adjustments if my first target is reached, which would likely to be taking profit, but if I do make it to the Bank of Canada monetary policy meeting, I’ll see what we get first and re-assess my potential adjustments. Stay tuned!
As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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