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The Aussie couldn’t hold its ground against the Greenback in 2018 but did have a nice bounce to start 2019. Is this another short opportunity for longer-term bears?

AUD/USD Long-Term Downtrend?

AUD/USD Daily
AUD/USD Daily

As we can clearly see in the Daily chart above, AUD/USD has been in bear control for quite some time, falling since topping out around 0.8100 back at the beginning of 2018. The bigger picture views that have likely had traders pushing the sell button in the past year: a tightening Federal Reserve, economic growth concerns in China (one of Australia’s largest trading partners), and broad concerns of a global economic slowdown in 2019 (taking down high-yielders vs. safe havens).

Also, my main man Pip Diddy mentioned in his Quick and Wacky Predictions for 2019 some domestic issues for Australia that likely kept the Reserve Bank of Australia from getting hawkish (back then and probably going forward), most notably big concerns for Australia’s housing market, that has likely propped up Aussie bears this past year.

But I gotta look forward, and it looks like expectations of Fed rate hikes for 2019 went from about 3 to 4 ahead of their December meeting, to possibly only one or two hikes for this year, which is likely a contributor to the recent sell off in the Greenback at the start of 2019.

Even if this is the case, I can still reasonably expect monetary policy divergence between the two central banks, as well as divergence in economic growth expectations, which is likely to benefit the Greenback over the Aussie until the stories change.

So, I’m sticking with the trend lower for now, and the previously mentioned spike higher in AUD/USD has brought the pair back  up to area where I am interested in shorting: the area of previous strong interest between 0.7050 – 0.7335. Up above, we can see the range that went on from between August to December, and I also pointed out on the chart the simple pattern of falling highs that this area lines up with.

But with broad risk sentiment on the upswing at the moment on cautious optimism in the U.S. – China trade negotiation story, and Stochastic not yet reaching overbought conditions, I’m looking to take a short position a little bit higher. I’m looking to start with a nibbler position in the middle of the range and likely put the rest on at the top of the range/falling trendline area. My max stop will be around the weekly ATR to from the average price, and my max target will be the previous swing low. Here’s what I’m doing:

Short half position AUD/USD at 0.7200, max stop at 0.7410, max target at 0.6770
Short half position AUD/USD at 0.7335, max stop at 0.7410, max target at 0.6770

I’ll be risking only 1.00% of my account and my potential max return-on-risk is about 3.68:1 if both positions are triggered. Of course, with other major themes driving markets, additional top tier economic data releases, 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.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.