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Turning last week’s watchlist idea on AUD/JPY into fresh orders with sellers seemingly in control of the market now.

Shorting AUD/JPY on Resistance Retest

AUD/JPY 4-Hour
AUD/JPY 4-Hour

Last week I pointed out a simple technical setup on AUD/JPY in the form of a double toppish pattern around a major area of resistance. Since then, we saw a break and restest of the “neckline I pointed out in the post, which it looks like the bears have taken as another opportunity to short.

Also since then, we got the latest read on Australia’s quarterly CPI report, which was mixed as the headline number came in below previous and the trimmed mean CPI ticked higher than the previous read. Without both reads ticking higher, it’s hard for me to see the Reserve Bank of Australia more hawkish at their upcoming monetary policy meeting next week, so I’m keeping my short Aussie bias for now.

As for the Japanese yen, we’ve got a busy week with inflation data on tap, followed by the Bank of Japan’s monetary policy meeting. Recently, Bank of Japan Governor Kuroda reiterated that they must continue with their ultra easy policy, so it’s unlikely we’re gonna get a change in policy or rhetoric in this week’s meeting. So, I’m thinking to probability is low we’ll get some volatility from this event, but of course, we’ll never know until we get there.

With my biases unchanged and the market not allowing a move higher, I’m going to put up short orders on AUD/JPY.  But with top tier events for both Australia and Japan, and monetary policy meetings going on over the next couple of weeks, I’m going to be conservative with my entry by putting it above market at the falling trendline and broken neckline.

My stop will be around the weekly ATR, and my target will the recent swing lows in March to give me a nice potential return-on-risk.  Here’s what I’m doing:

Short half position AUD/JPY at 83.50, max stop loss at 85.25, max target at 81.00 for a potential return-on-risk of around 1.42

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 upcoming monetary policy decisions bring on some downside momentum.

Of course, I’ll look to close out quickly if conditions or data changes back in favor of the Aussie, or if global risk sentiment flips back to positive.

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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