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What’s up forex fiends! Going with a longer-term play today with this textbook technical short setup on AUD/JPY. Think it’s time for the pair to drop?


Fundamentally, I’m still a fan of the Japanese yen despite the recent weakness we’ve seen in the past couple of months, which have seemed to stabilized. The Bank of Japan is still optimistic on Japan’s economic outlook, recently support with yesterday’s better-than-expected Japanese PMI data. And there is a little bit of expectation that Japanese economic data is good enough for a serious consideration to have talks of potentially tightening up monetary policy by the BOJ. All together, I think this is bullish for the Japanese yen in the longer-term.

The Aussie on the other hand is probably my least favorite major currency at the moment. The data has been mixed for Australia with better-than-expected retail sales data and employment data vs. a fall in commodity prices (most notably one of its major export in iron ore), but I’m thinking the positive is not enough to outweigh the negative in getting the market to think there is possibly monetary policy tightening in the near future from the RBA. We’ll know for sure with the Reserve Bank of Australia meeting next Monday, which should be a catalyst for a pick up in volatility for Aussie pairs.

So, I’m fundamentally bearish on the pair for now and from a technical standpoint, I’m seeing a bearish chart formation on the daily time frame.

Looking at the chart above, we can see the pair is hitting an area that was once strong support back in 2015, which then broke and turned into resistance late in that year. It was retested in 2017 and the sellers held, and now we’re seeing another retest again.

With the longer-term swing low around 72.50 in 2016 as my target and 2x weekly ATR as my stop, the potential max return-on-risk is big. That’s a best case scenario, but even if the pair was only able to get enough momentum to hit the Nov. 2017 and May 2017 lows, that’s still a pretty good return-on-risk for a long-term position play in my book.  With that said, here’s what I’m going to do:

Short full position AUD/JPY at market (87.97), max stop at 91.10,  max target at 75.00 for a max potential 4.14:1 return-on-risk

I’ll be risking only 1.00% of my account on this position and as usual, I’ll look to make adjustments as events and data comes out, again starting with my reaction to the RBA meeting next week. Stay tuned for updates, good luck and good trading!

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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