Talking Points:
- AUD/USD short trade from last week triggered
- Sentiment still giving bearish signals
- Downtrend could continue towards 0.8700
Last week we discussed a potential trading opportunity in the AUD/USD. In that article, we examined volume, sentiment and technical analysis to give us a sell bias. Today, I wanted to look again at this opportunity and update readers on what's been happening since.
AUD/USD Support Broken - Bearish
The trend line support cited in last week's article has been broken. The chart below shows that over the weekend, the AUD/USD gapped below the trend line and closed for the day. We had said we would act on a trade if the closing price was below support. That was our trigger. After a short term rebound up to 0.9100, AUD/USD then fell and closed for the day below 0.9000.
Learn Forex: AUD/USD Breaking Through Support
(Created using DailyFX.com Charts)
The AUD/USD has moved sideways ever since the break which is normal following an extended move in one direction. Once price breaks out of this consolidation pattern, it then could continue to move lower.
AUD/USD Sentiment Growing More Positive - Bearish
Sentiment for AUD/USD last week showed that 66% of traders were long. Currently, SSI is at +2.25, meaning 69% of traders are long. Normally, we want to look to do the opposite of the retail trading crowd, so seeing a positive sentiment would give us a bias towards selling. This is especially true when sentiment is becoming even more positive.
This could potentially be a sign that the Aussie could continue lower as sentiment increases in the positive direction.
Learn Forex: AUD/USD Speculative Sentiment Index (SSI) - Positive
(Screen capture from DailyFX SSI)
Exit Strategy
As a longer term trade, an appropriate target could be as far as 0.8700 (250 pips below the current market price). This was a previous low hit back in late January that supported price. It could act as support once more. Using a 1:2 risk:reward ratio, this would require a stop loss of 125 pips or less.
Learn Forex: AUD/USD Support at 0.8700
In Conclusion
The AUD/USD is definitely a pair that I would consider "in play." There are several reasons to attempt to short but there are no guarantees in trading. Make sure you are using proper money management and perform your own due diligence before placing any trades on your own account. Also, feel free to utilize a demo account to practice trading risk-free before trading with real money.
Good trading!
---Written by Rob Pasche
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