Decided to close out my longer-term short position in AUD/JPY as a lot has changed since putting it on two weeks ago. Here’s a quick recap of my trade and why I closed out at market.
Long-term Short on AUD/JPY
Back in March, I decided to fade the bounce in AUD/JPY to play a potential return in risk-off sentiment as coronavirus cases/deaths were likely to rapidly continue and that economic data would soon come in showing the damage from the global lockdown to combat the virus.
I did this at the 50% Fibonacci retracement of the big down move from early March, an area that was likely to draw in some sellers with a similar view point and/or profit takers who did well on the drop.
Resistance in this area was looking good until this week, when global risk sentiment shifted big time towards positive. It was a combination of coronavirus slowdown hopes and the potential of an oil production cut deal from OPEC that had traders going long on risk assets once again, but it was the Fed’s latest stimulus move of another $2T in support that had me changing my stance on my AUD/JPY short, at least for now.
On the idea that we will likely continue to see more positive sentiment in the short-term, I decided yesterday to cut this trade short by closing the live position manually (at 68.60) and close my short orders at 68.85.
Total: -225 pips / -0.22% loss on 0.50% max risk
Looking back, I knew that a slow down in the cases would bring in some positive risk sentiment vibes, but I didn’t expect another stimulus package so soon. But it looks like the Federal Reserve really needed to support junk bond market after their earlier efforts in the invest grade bond markets failed to bring confidence to junk bonds.
And with that, plus the slowdown in cases in the U.S. and Europe, positive risk sentiment is likely here to stay for a week or two now, or at least until we see a negative turn in the coronavirus pandemic story. Longer-term, I’m still bearish on AUD/JPY, but for now I’ll have to shift with the rest of the market’s positive vibes.
Stay tuned for a potential idea to come, 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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