Volatility finally picked up in FX over the past week thanks to geopolitical risk, shaking up a few trades on the books. Here’s a quick update and ideas on what to do next with the trades still working.
EUR/AUD Support Break?
Starting this round of updates with the bad, specifically my EUR/AUD short idea that didn’t do so well after last week’s big spike volatility. In case you missed it, U.S.-China trade war tensions picked up big time after China announces tariffs on $75B worth of U.S. goods, but really kicked into overdrive after U.S. President Trump orders US companies to look for ‘alternative to China’ in tweet. Global markets went into big risk aversion mode, which usually means high-yielding currencies fell to the low-yielders pretty quickly. That was certainly the case for my EUR/AUD position as the pair broke above 1.6500 before the weekend.
The sentiment continued at the start of this week as Asian markets got a chance to react to Friday’s events, pushing EUR/AUD higher to not only trigger my second short position at 1.6550, but to eventually trigger my max stop level at 1.6625 to close out my full position for a small loss:
Total: -115 pips avg. / -1.00% loss on 1.00% original risk
A small loss is never fun, but it was an especially big kick in the pants that the market quickly reversed back to pre-Trump tweet levels very quickly after President Trump made a claim that China called the U.S. to get back to the negotiating table. Did it really happen? Who knows but the reaction was that the world markets saw this as a big relief and EUR/AUD was back to below 1.6400 before the close of the Monday session. It was a not-so-fun reminder of the kind of environment we’re in, where a Twitter account from a very active and powerful Twitter user can move the markets with the push of a button.
As for EUR/AUD, I’m still short biased on the pair as long as global risk sentiment stays generally positive, but I’m going to stay away for now as I want to keep my exposure low going into the new trading month soon.
CAD/CHF Fibonacci Resistance?
Since shorting CAD/CHF at market last week to play the general trend favoring risk aversion behavior and on recent weak economic updates from Canada, the pair is still roughly where I entered. Sure, the trade did benefit from the big risk-off move on Friday, but as I mentioned in the EUR/AUD recap, Trump’s comments made sure sentiment got back to positive very quickly.
Looking forward, the Canadian dollar is still likely to see volatility as Canada’s economic calendar remains busy for the next couple of weeks, most notably the Bank of Canada’s latest monetary policy decision on Sept. 4th. I think the odds are pretty high that we’ll get dovish rhetoric from the BOC to match the concerns other central banks have shared on the global economy, and the odds are probably better than 50/50 that policy will remain accommodative with a possibility of easing up if conditions worsen. I’m still with this trade for now, but I may make some adjustments depending on where the market is at ahead of the BOC monetary policy meeting.
Downtrend Bounce in AUD/CAD?
I put this idea up at the beginning of August to short AUD/CAD on a bounce back up to an area of potential resistance to play my fundamental bias in favor of Canada’s relatively strong economy vs. the high possibility of rate cuts from the RBA. This turned out to be a pretty good idea as the pair did bounce enough to trigger two of my short orders at 0.9000 & 0.9050 before finding resistance and falling back below 0.9000 at current trade. I’m currently in the green on this position roughly 0.25% on 1.00% risk, which is not bad given what we’ve seen in recent weeks.
As mentioned above, we’ve still got a busy Canadian calendar ahead, so I will adjust this pair, most likely at the end of the week after we get the latest Canadian monthly GDP data and see how the market reacts to the result. I’ll likely take some profit ahead of the new trading month and a potentially dovish BOC meeting, but I’ll make that call on Friday.
That’s it for now. What do you think of the latest updates? Different adjustment ideas or ways I could have played EUR/AUD to avoid max loss? Would love to hear your thoughts so please don’t hesitate to share in the comments section below!
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