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Got another setup on a yen pair, this time a potential longer-term play on AUD/JPY. Will this week’s events and risk sentiment give me another opportunity to play the downtrend?

Another Short Setup Forming on AUD/JPY?


Longer-term, I’m fundamentally more biased in favor of the yen over the Aussie as global risk sentiment has been shifting towards aversion mode; a condition that could hang around for a bit with a long list of negative themes currently driving the broad global market at the moment. A potential escalation in the U.S. – China trade warBrexit negotiations taking longer than expected, and monetary policy tightening around the globe tops the list and they’re situations that don’t seem to look to turn around anytime soon, so I’m guessing traders will continue to shed risk assets until we get a fresh game changing catalyst.

Price action in AUD/JPY reflects these longer-term themes as the pair started out above 89.00 at the start of 2018, to trade around the 80.00 handle over the past month, a near -10% drop year-to-date. But we still have a ways to go before we hit major support, which is likely to come around the 73.00 to 74.00 handles, which was the major buy area back in 2016. So, in the likely case the trend continues lower, the risk-to-reward still looks very favorable targeting the 2016 lows.

So, I’m looking to short AUD/JPY with the trend, but we’ve got several economic events that could possibly push the pair higher in the next couple of weeks. Most notable is Australia’s quarterly CPI report this week and the Bank of Japan’s latest monetary policy decision. Both aren’t normally huge market movers but do have potential to be major catalysts if we get surprises. Also, next week we’ll get the Reserve Bank of Australia’s monetary policy decision, which I think will likely be influenced by this week’s CPI reading.

With that in mind, I’m going with a conservative entry for now around the falling highs and previous area of interest marked on the daily chart above, which I will likely adjust after we get this week’s major economic events out of the way this week if my orders are not triggered. Here’s what I’m doing:

Short quarter position AUD/JPY at 81.50, max stop at 83.50, max target at 74.00

Again, I’ll be risking only 0.50% of my account and my potential return-on-risk is about 3.751 . I will likely add to this position if triggered and it goes my way later, depending on what we get from the BOJ and RBA in the next week or so.

Of course, with other major themes driving markets 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.