Throwing AUD/USD onto the watchlist as it has potentially big time fundamental catalysts in the works while testing a major area of previous interest.
Watchlist: AUD/USD At Major Area Of Interest
For those who may have missed it, AUD/USD is back retesting a major area of previous interest: the .7300 – .7350 area has been both areas of major support and resistance in 2018. The market is back up there and finding resistance at the moment, and a break in either direction up or down has the potential for very good potential reward-to-risk setups.
Using a weekly ATR of around 120 pips as a stop, an upside break could see smooth sailing up to the .7475 handle, and possibly even the June 2018 high just above .7620. A downside break could see very little support until the .7050 handle, which was the October lows and major reversal point into its current rally. Both situations have a max potential R:R of at least 2:1, which is very desirable for a trade that I’m looking to hold for only a week or two.
So, what could get AUD/USD moving from this strong area of interest?
Well, Fed Chair Powell’s comments yesterday certainly got USD traders moving when he signaled that rates are close to neutral. This could be the catalyst for a short-to-medium term short bias on the Greenback if traders think the Fed will slow the pace of rate hikes. The reaction was certainly strong, and now we have to see if it will have legs beyond the other potential catalyst coming this weekend: the G20 meeting in Buenos Aires.
I think the G20 meeting has the bigger potential impact for a move in the global financial markets as the main event to watch from this gathering is any potential trade deal between the U.S. and China. Donald Trump will meet with Xi Jinping this weekend and odds are that we’re likely not going to see any deal as both sides aren’t willing to budge on concessions, but we could get calming rhetoric from both sides.
So, the catalyst for a big move could likely be one of two possible surprises:
- If we see an actual trade deal announced between the U.S. and China, which would likely trigger traders to go into “risk-on” mode next week
- The relationship sours between the two leaders further and/or we hear rhetoric for an escalation in protectionist policies from the U.S., as well as retaliations from China.
Either scenario would be a major mover to Chinese and U.S. related assets, which makes AUD/USD one of the best ways to play any volatility in the FX markets from this event because of Australia’s close economic ties with China, and both currencies’ correlation to risk sentiment driven moves.
But with Trump involved, you never know what you’re going to get until you get it, which is why I’m going into watch mode on AUD/USD. Once we get to next week and have an idea of how the meeting went, it’s likely I’ll take a position depending on how all of the cards fall.
So stay tuned for a fresh idea on AUD/USD next week, 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. Good luck and good trading!
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