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I can’t seem to catch a decent pullback on AUD/USD, so I’m turning my attention to this nicer tech setup on AUD/JPY instead. What do you think?

AUD/JPY Trade Idea

On the daily time frame, I’m seeing a sketchy inverse head and shoulders pattern that just had its neckline broken. Now this chart formation is approximately a thousand pips tall so the resulting uptrend could be of the same size.

AUD/JPY Daily Forex Chart
AUD/JPY Daily Forex Chart

However, stochastic is already indicating overbought conditions on this time frame so I’m thinking that a pullback might still be in order. Zooming in to the 4-hour chart reveals that price is trading inside a rising channel and is testing the bottom, which happens to line up with the long-term area of interest.

AUD/JPY 4-hour Forex Chart
AUD/JPY 4-hour Forex Chart

I’m thinking of hopping in a long position around the 88.00-88.25 area, but I’m having second thoughts because the Australian quarterly CPI just missed expectations. The headline figure printed a 0.2% uptick versus the projected 0.4% gain and previous 0.5% increase while the trimmed mean CPI came in line with consensus at 0.5%.

RBA Governor Lowe still has a speech coming up so I’m sure Aussie traders are sitting on the edge of their seats to find out if the central bank head honcho would sound downbeat upon seeing these figures. If not, the Aussie could resume its rally against the yen, especially if risk appetite stays in play.

Speaking of the Japanese currency, the lack of BOJ dovishness in last week’s policy statement paved the way for some gains, but expectations of FOMC hawkishness this week could revive yen weakness. Because of that, I think I’ll sit on my hands and wait for the post-FOMC dust to settle before taking any short yen positions. After all, U.S. bond yields tend to influence yen pairs because of their impact on USD/JPY.

I haven’t set actual orders yet but here’s what I’m looking at:

Long AUD/JPY around 88.00, stop loss below 87.00, ultimate profit target at 96.00. If I’m able to jump in and price shows strong bullish momentum, I’ll trail my stop to entry once price tests the area of interest around 90.00.

Let me know what you think of this setup!



See also: Q2 2017 Trading Performance Review

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