I’m back on my short Aussie dollar bias, but this time against the Japan yen after a simple break of rising lows. Check it out!
Rising Lows Break-n-Rest on AUD/JPY?
Much like AUD/USD short idea, my bias on the Aussie remains to the downside. This is mostly on the recent step back in the Australian leading indicators, which have been testing the upper end of their historical ranges. This doesn’t mean that the Australian economy is about to turn towards recession, but I do believe that the odds of further significant improvement are low from here. And like I mentioned in my AUD/USD short idea, Australia’s big trading partner China has seen a rough patch in recent months, which seems to be influencing business sentiment according to the latest Caixin Services PMI report hitting a 21-month low in September. This could lead to furth hits to Australia’s trade economy, which has been in a downtrend since the end of 2016.
I’m more bullish on the Japan relative to Australia with leading indicators still broadly on the rise, the surprise growth in GDP and jobs, and improving inflation reads. Now this doesn’t mean the BOJ will start considering tapering their massive quantitative easing measures, but I think the odds are low of them increasing it any time soon. To me, that means broad risk sentiment is likely to remain the yen’s main driver for now, and I’m in the camp that sentiment may be topping out if we’re on the verge of major central banks like the FOMC and ECB ready to taper easy money policies.
In terms of price action, on the four chart above we can see the pair has been in a downtrend since hitting highs around 90.00 back in September, and with this strong momentum, the pair broke through a rising lows pattern the goes back to early August. It also broke the 88.00 handle, which has been an area of interest in the recent past. Both patterns could draw in sellers if retested, especially with stochastic showing potentially short-term overbought conditions at the moment.
With that fundamental bias, the technical setup, and the slew of Australian, Japanese & Chinese data coming in the next week, I’m going to go ahead and jump in at market with my usual weekly ATR stop. My initial target will be the strong support around August lows for good starting potential R:R. Here’s what I’m doing:
Short half position AUD/JPY at market (87.96), max stop loss at 89.86, initial target at 86.00 for an initial potential 1:1 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, and likely add to my position/roll stop up to max out the trade if we get significant catalysts for further downside moves.
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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