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Taking a swing at EUR/AUD as the pair is breaking a recent support level on the hourly chart. What could drive this pair lower in the short-term?

EUR/AUD Support Break?

EUR/AUD 1-Hour Forex Chart
EUR/AUD 1-Hour Forex Chart

Over the past couple of weeks, it looks like the bears have started to take back control of EUR/AUD as we’ve seen a series of lower ‘highs’ after the pair topped out around 1.6800. This is likely on the recent round of Australian economic updates surprising with better-than-expected reads, most recently the big positive surprise in Australian employment conditions.  But the bulls haven’t given up though as they’ve held the area around 1.6420…at least up until today. It looks like the support level is starting to break, which could draw in technical sellers to play a potential breakdown.

Looking forward to the rest of the month, it looks like volatility could stay bid with another round of European PMI updates next week, as well as Australian housing data and European Ifo business survey data near the end of the month. And given that the trends have been weak economic sentiment from Europe and positive surprise from Australia, odds are in EUR/AUD bears favor for the upcoming data releases.

With that outlook, I’m putting on a short position to hold for the next couple of weeks, starting with a nibbler position at market. My max stop will be the weekly ATR from the current levels, and my max target two times the weekly ATR, but it’s likely I’ll close before either of those are tested. Here’s what I’m doing:

Short half position EUR/AUD at market (1.6386), max stop at 1.6625, max target at 1.6000 with 0.50% risk

Short half position EUR/AUD at 1.6550, max stop at 1.6625, max target at 1.6000 with 0.50% risk

I’ll be risking 1.00% of my account if all positions are triggered, and my potential return-on-risk is about 4.5:1.  But again, it’s highly likely I’ll exit this trade before the end of the month after reassessing the markets then.

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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