I’m taking another shot at shorting AUD/JPY as it’s back at a previously strong resistance area, ahead of potentially potent catalysts coming soon.
Reversal at Top of AUD/JPY Range?
Fundamentally, I’m still a fan of shorting the Aussie with building activity slowing and the rate of money supply is slowing in Australia. Low inflation is still a concern as well, so I’m on the odds that Australia’s economy could hit a snag in the not-too-far future, especially when their largest trading partner, China, could itself be on the verge of an economic slowdown.
As far as Japanese yen, I like playing it more as an expression of my views on broad risk sentiment, rather than the economic data, which hasn’t been that bad despite the recent surprise negative Q1 GDP reading. And with my boy Pip Diddy pointing out a slew of geopolitical risks to watch out for, odds aren’t too bad that some more yen rallying could be in the works for the next few weeks if trade war rhetoric escalates.
In terms of price action, AUD/JPY hit the major resistance area around 84.00, which has brought in the bears quite a few times over the last three months. We’re seeing resistance once again after topping out around 84.50, making this range play attractive, especially with the bottom around 81.00 for a nice potential return-on-risk. The Stochastic is also indicating overbought conditions on the daily timeframe.
So, I’m looking for a short play, but with a few major catalysts coming up, most notably from Australia that could spike the pair higher in the next few days, I’m looking for putting my orders above market in case we get positive news for the Australian dollar.
My usual stop will be around the weekly ATR to limit my risk, and my initial target will the major swing low that brought on a bullish reversal back in March, where I’ll re-assess to either take profit or go for a bigger reward. Here’s what I’m doing:
Short half position AUD/JPY at 84.00, max stop loss at 85.80, initial target at 80.50
I’ll be risking only 0.5% of my account on this position and as usual, I’ll look to maximize the trade by keeping the trade open and adding to my position/roll stop down if the 81.00 – 82.00 area fails to draw in buying support.
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.
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