I’m feeling the recent positive vibes aren’t likely here to stay, so I’m playing it through AUD/JPY, which could be running into resistance soon.
Long-term Short on AUD/JPY
What a few weeks it’s been in the financial markets, right? The highly infectious coronavirus has spread globally, sparking a really bad run of broad deleveraging in the financial markets.
Then we got massive stimulus programs from central banks and governments around the world (e.g., U.S. Senate passes $2T disaster aid bill, ECB shakes off limits on new €750bn bond buying plan, etc.) to combat the likely economic damage the coronavirus will do, sparking a bounce in global risk sentiment this past week. So what’s next?
Well, with the number of new cases and deaths still rising rapidly (Global cases top 500,000), and the economic data just starting to come in to confirm the damage from the global lockdown (e.g., U.S. jobless claims soar past 3 million, Singapore flags deep recession as coronavirus shrinks economy in Q1), I think another round of risk aversion is likely in the cards over the next few weeks…maybe even for a few months.
With that highly probable scenario, I’m shorting AUD/JPY, which has been strongly correlated with global risk sentiment over the past few years as the yen tends to benefit the most among the majors during risk aversion environments, and the Aussie tends to rally strongly when traders go into risk-on mode.
And I look to scale into my short position now that the pair is retesting the Fibonacci retracement area (as shown in the daily chart above), but the bullish move doesn’t seem to be slowing down just yet.
I plan on holding onto this trade for a while, a few weeks to maybe a couple of months, so I’ll be using a wider than usual stop of around two weekly ATR. My max target will be the panic lows for now, but I may adjust the plan depending on the environment down the road. Here’s what I’m going to do for now:
Short half position AUD/JPY at market (66.35), max stop at 71.30 with 0.50% risk, max target at 60.00
Short half position AUD/JPY at 68.85, max stop at 71.30 with 0.50% risk, max target at 60.00
I’ll be risking 1.00% of my account if both positions are triggered with a potential 2.43:1 return-on-risk. If the market does go my way, I’ll look to adjust the plan / add to the position to maximize my potential profit and reduce risk.
That’s it for now. 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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