Checking out this classic technical break on AUD/NZD for a potential opportunity at the right price.
AUD/NZD Downside Break?
The Aussie has not been on the good side of traders lately, likely on a combination of rising geopolitical tensions to take the air out of risk-on trades (like long AUD) and the recent battle against out of control brush fires all across Australia. The latter scenario is likely to severely punish Australia’s economy as a significant amount of resources will be needed to not only fight the fires, but also recover. This likely contributes to speculation more interest rate cuts will be needed from the RBA to stimulate the economy–a negative Aussie dollar environment in case you were wondering.
So, I’m fundamentally bearish on the Australian dollar for now, and I’m choosing the New Zealand dollar to buy against it given its strong end to 2019 on improving economic data (Higher retail consumption lifts New Zealand Q3 GDP, NZ consumer confidence up 6.8 points in December, New Zealand government unveils $12B infrastructure boost). And since both currencies are considered “risk-on” sentiment type assets, then a little bit of global risk sentiment is hedged out, leaving the direction influenced more by their respective countries health and monetary policy outlook.
From a price action perspective, the pair just broke below a descending triangle formation around the 1.0400 major psychological level, and took off to the downside from there to test the 1.0350 area. It looks like this the current levels be a short-term bottom as stochastic is showing potentially oversold conditions, so I’m going to set my short entry orders above market to see if I can get in at a better price.
My max stop will be around one two weekly ATR, while my max target will be the 2015 lows, but I won’t hesitate to take profit if the situation changes. Here’s what I’m doing:
Short full position AUD/NZD at 1.0395, max stop at 1.0610 with 1.00% max risk, max target at 1.0050
I’ll be risking 1.00% of my account to start for a 1.60:1 return-on-risk, and as usual, I will look to add to the position to maximize the position if my live position gains profits and the driving themes remain the same. If the situation or price action shifts away from my thesis, I will be sure to adjust my trade quickly to limit any losses.
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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