It’s decision time for Aussie traders, as AUD/USD is sitting right smack at the top of its ascending triangle on the long-term time frame. Which way will it go?
AUD/USD Trade Idea
The pair is currently testing the .7750 minor psychological resistance, which has held as a strong area of interest in the past. If it continues to keep gains in check, AUD/USD could head back down to support around .7450 to .7500.
On the other hand, an upside break from the resistance could lead to a longer-term 1,000-pip climb, which is roughly the same height as the ascending triangle pattern. Stochastic is pointing up to show that bullish momentum is in play but is already approaching the overbought level.
Aussie bulls have been charging recently, gaining energy from stronger risk appetite and upbeat trade figures from China. The June trade surplus widened from 282 billion CNY to 294 billion CNY thanks to a higher than expected 17.3% jump in exports to reflect robust global demand.
At the same time, imports advanced by an even stronger 23.1%, which is a good sign for the commodity-driven Australian economy. Keep in mind that China is Australia’s BFF in terms of trade, so strong Chinese trade numbers is a plus for the Land Down Under’s business activity.
However, dollar bulls could gain support from stronger Fed rate hike expectations in September or December. In her latest testimony, Fed Chairperson Yellen hinted that inflation risks are tilted to the upside due to tight labor market conditions.
Yellen also mentioned that the balance sheet runoff, which they plan on starting later this year, could put upside pressure on long-term interest rates. This could lend additional support for the Greenback, especially if risk aversion returns.
Also, keep in mind that the RBA was less hawkish than expected in their recent policy statement so traders might be hesitant to pile on their long Aussie positions.
Because of that, I’m still undecided which direction I should take when it comes to trading this pair. I’ll probably wait and see how today’s U.S. CPI and retail sales figures turn out in order to better gauge how inflation and consumer spending could impact Fed policy biases.
If AUD/USD shows upside momentum, I’ll try to hop in a long position above .7800 with a stop twice as wide as the pair’s weekly ATR of 120 pips. If bears take over, I’ll go for a short below .7700 with a tighter stop above the triangle resistance then aim for at least 1:1 in return-on-risk until support.
How about you guys? Which way do you think this pair might go?
See also: Q2 2017 Trading Performance Review
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