Taking a longer-term shot at AUD/CAD as it tests a major resistance area ahead of top tier economic data from both Australia and Canada. Will sellers take control once again to keep the range pattern going?
AUD/CAD Range Resistance to Hold?
We’ve been bears on AUD/CAD in the past, and it might be time to get short once again on the pair as we’ll likely see volatility pick up in both the Canadian dollar and Australian dollar over the next week.
We’ve got employment updates for both countries coming soon (Canada on Friday and Australia next Wednesday), so it’s very likely that if the market goes my way, I may not have to hold on to this pair for long to see a profit.
Fundamentally, I’m bearish as Canada has been a relative economic outperformer relative to the other major economies, and Canada currently boasts the highest short-term rate relative to the majors as well.
There was some concern for CAD bulls given the recent surprise bearish comments from the BOC, as well as some concern on oil prices as inventories build, but overall, the Loonie remains relatively attractive as long as we don’t see some sort of exogenous shock to the financial markets.
As far as the Aussie, economic conditions seemed to have improved overall (e.g., services sector improves, Australian New home sales bounced back) but I don’t think it’s enough to deter traders’ expectations of further rate cuts from the RBA.
With all of that in mind, I’m looking to scale into a short position, starting with a nibbler trade to play the resistance forming on the range on the four-hour chart above.
Based on what we get from CA & AU data, I may scale into a bigger position, and whether or not I get bigger, I’ll start with a pretty wide stop given that we’ll get top tier economic reports ahead.
My target will be the bottom of the range, and I look to hold onto this position for the next few weeks or longer. Here’s what I’m doing:
Short half position AUD/CAD at 0.9090, max stop at 0.9360 with 0.50% risk, max target 0.8855
I’ll be risking 0.50% of my account to start for an initial 0.87:1 return-on-risk, but again, I’m looking to get bigger to my max 1.00% if it makes sense to do so after the employment data updates and seeing how the market reacts to the news.
Stay tuned for updates 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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