Taking a look at AUD/USD for a potential new position this week, waiting to see if upcoming events will get me in the strong uptrend at a better price.
AUD/USD Uptrend Play
In case you may have missed it, the “reopening” theme has been a surprise to a lot of traders, lifting risk assets for the past month or so on hopes of a quick recovery after the global pandemic lockdown.
Long AUD/USD has been one of those trades that played along with that idea, especially with Australia handling the coronavirus pandemic really well (relatively low deaths & death rate, high recovery rate).
And the U.S. dollar has suffered, not only because of its “safe haven” status that makes it less attractive during “risk on” environments but also on the massive central bank stimulus that has put the pressure on the Greenback as well.
It’s likely we’ll see these conditions for at least the next few weeks with the Fed likely to re-iterate that their easy money policy is here to stay in their latest policy statement tomorrow and that there doesn’t seem to be any economic catalysts ahead to likely shift the picture on either currency.
Maybe the Australian jobs data may make some noise, but everything else on the economic calendar until the end of June is likely to be snoozers.
The big risk to me is if we see data pointing to a potential “second wave” of coronavirus cases now that large parts of the global economy have opened back up, a scenario likely to push traders to take some risk off.
We should get a better picture of that story in the next week or so.
For now, I’m going with the trend higher, as seen in the four-hour chart above of AUD/USD, but with the Fed statement coming tomorrow, I’m going to put in a conservative order (i.e., waiting for a pullback).
I’m setting my buy order around the Fibonacci retracement area (0.6630 – 0.6790), an area that may be retested as the rally looks to reverse pretty soon from a technical standpoint (the divergence between the price action (higher ‘highs’) and Stochastic (lower ‘highs’) is usually a sell signal).
Starting with a nibbler position, my stop will be below the Fibs, and my initial profit target will two times my risk to start, but I’ll likely increase that max target if things go my way. For now, here’s what I’m going to do:
Long half position AUD/USD at 0.6800, max stop loss at 0.6585, initial target at 0.7250
I’ll be risking only 0.50% of my account on this position with a 2.09:1 potential R:R to start. As usual, I’ll look to maximize the trade by adding to my position/roll stop up to max out the trade if the pair continues to move higher.
Of course, I’ll look to close out quickly if conditions or data changes showing a second wave of coronavirus cases, and/or a set of very weak Australian economic updates hits the Aussie in a negative way.
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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