Taking a short-term shot at AUD/USD, ahead of likely volatility coming from an upcoming top tier economic update from Australia!
Short-term Range Play on AUD/USD
In the upcoming Wednesday Asia session, we’ve got the latest quarterly update on inflation coming from Australia. Inflation is a pretty big input to how central banks shape monetary policy, so this is likely to be a market mover for the Aussie, especially given that we only get this update once per quarter.
Expectations are for inflation to come in lower than the previous quarter, which is based on falling sales prices from the latest AU manufacturing & services PMI reads. This doesn’t seem to be priced in yet given the Aussie’s recent strength on positive global risk sentiment, so I think a “buy-the-rumor, sell-the-news” scenario is a low probability event in this particular case. I’m pairing this with the dollar and making this a short-term play as we’ve got the latest FOMC statement coming in the Wednesday afternoon U.S. session, so it’s likely dollar traders will hang on the sideline and shouldn’t affect AUD/USD price action so much until then.
From a technical analysis perspective, the pair has been in a range for the last few months, trading in a 200 pip range. The market is currently trading near the top of the range, and with the stochastic indicator pointing to potentially overbought conditions, a reversal may be in the cards for the pair short-term.
With all of that in mind, I’m taking a nibbler trade to play the potential for the Aussie to fall if the AU CPI data disappoints, with a 2x daily ATR as my stop guide and a max target of the bottom of the range for a nice potential short-term potential return-on-risk. Here’s what I’m doing:
Short half position AUD/USD at market (0.6860), max stop at 0.6960, max target at 0.6705
I’ll be risking 0.50% of my account to start for an initial 1.54:1 return-on-risk, but I’d be happy to settle for less (around 1:1 R:R) as I’ll likely take this trade down during the Wednesday morning U.S. session to avoid the FOMC event risk. I don’t foresee the possibility of turning this into a swing trade with expectations of rate cut from the Fed tomorrow, but I’m leaving that option open if the trade is deep in the money (1 or 2x daily ATR) in profit.
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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