A couple of weeks back, I threw a couple of potential trade scenarios on GBP/AUD, and with the pair rallying higher lately, it’s time for me to may my move!
Consolidation Breakout on GBP/AUD
Back at the beginning of March, I pointed out a couple of long entry scenarios to play my bullish bias on Sterling over the Aussie. For the most part, I’m still fundamentally bullish this pair, especially with the recent economic and geopolitical developments; most notably the recent disappointments in Australian economic data (weaker-than-expected retail sales, employment and GDP data ) and the U.K. and E.U taking another step closer to a Brexit deal.
In the short-to-medium-term, I think traders will continue to focus on these themes because of the lack of major data points for the rest of the month, as well as the recent round of global risk-off sentiment as trade war fears run wild. This is likely to hit the Aussie more than the British pound because it is a higher-yielding currency.
Looking at price action, the resistance area around 1.7900 broke easily on the recent fundie catalysts, but it looks like that rally is running out of steam around the 1.8400 handle. The stochastic indicator is signaling potentially overbought conditions, and you could argue a divergence signal with lower ‘highs’ on the stochastic and vice versa on price, so a reversal may be in the cards.
So, if there is a pullback, I am looking at buying very small, multiple positions around the broken resistance and Fib retracement area, with a wide stop because this pair does have a higher average volatility range than most other pairs, currently somewhere around 365 pips ATR on a weekly basis. My target is open at the moment, but zooming out to the higher time frames and we can see the 2016 high around 2.0000 so the potential return-on-risk looks pretty good.
But for starters, here’s the small initial position I’m putting on first:
Long quarter position GBP/AUD at 1.8000, max stop loss at 1.7635, max target at 2.0000 for a potential 5:1 return-on-risk
I’ll be risking only 0.25% of my account on this initial position and I’ll look to add on a pullback or breakout higher, risking no more than 0.50% on the trade, if the current themes continue to play out for the next week or two.
Let’s see if the recent developments on the U.S. tariff story will bring back some sellers, so for now it’s wait-and-see time, as well as hunt for other market opportunities. 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.