Downside momentum is picking up once again in AUD/CAD, making the recent support break another solid setup to play the trend lower.
Downtrend Momentum In AUD/CAD
AUD/CAD has been on my watchlist for a while and I definitely missed out on my chance to short the pair when it retested the previous broken support around 0.9700 that I was eyeing.
Momentum has picked up once again to the downside, lately on not just the U.S.-China trade war fear developments, but also on the recent downswing in gold and on the global risk aversion sentiment sparked by the fall in the Turkish Lira.
The Aussie is kind of a proxy for China and emerging market currency, so it’s highly probable that the move in AUD/CAD has been mostly driven by Aussie bearishness, something that is likely not going to change in the medium-to-longer term.
In the short-term, this move has been pretty strong, so while I am bearish on the pair, my plan is to take a more conservative entry strategy of scaling into a short position from around current levels and up in case there is some profit taking on the move, or bullish reactions to upcoming data.
Looking forward, we’ve got Australian employment data and Canadian CPI data as a upcoming catalysts for a potential pick up in volatility, and with expectations of Aussie jobs to come in lower than the previous month, we could see another reason for Aussie bears to keep pushing lower.
So, with the current trend lower, potential profit taking after a strong move, and top tier economic catalysts coming up, I’m going in with two positions, first with a nibbler at market and another at the recent broken support area around .9600.
My stop will be a full weekly ATR from the average entry of both positions to give the position room to breathe, and I’m looking to target the 2016 lows for my next adjustment. Here’s what I’m doing:
Short quarter position AUD/CAD at market (.9487), max stop at .9700, max target at .9350
Short quarter position AUD/CAD at .9600, max stop at .9700, max target at .9350
I’ll be risking only 0.50% of my account if both positions are triggered and with this setup, I have an initial 1.33:1 return-on-risk, but if momentum is still strong at the 2016 lows, I’ll adjust the position and trade plan to maximize the gains on this trade.
Again, with top tier events ahead and fast developments happening in geopolitical news, I will not hesitate to adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on what happens and how the markets react.
Stay tuned and 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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