This article is Part 2 of a series.
Took a hit on my EUR/AUD idea last week as the market swiftly went risk-off and the euro found support on improving sentiment data. Here’s a quick review.
EUR/AUD Fib Short Play
Last week, I decided to short EUR/AUD after the pair broke below a rising trendline to play the broad risk-on environment and the massive EU stimulus that just passed.
I decided to do so on a pullback as the pair had already made a strong move lower, raising the odds of a pullback higher.
Well, I got the pullback I was looking for, but that rally was on changing conditions, most notably the broad shift in risk sentiment last Thursday as traders started to worry about economic conditions given the rise in COVID-19 cases and the persistently weak U.S. jobs data.
We also saw geopolitical issues as tensions rose between the U.S. and China, pushing traders away from risk assets into safe havens and lower-yielding currencies. And there may have been some selling pressure on the Aussie as COVID-19 cases were rising in Australia.
This was the likely driver behind EUR/AUD’s rally higher, pushing the pair quickly beyond the Fibonacci retracement area, back above the rising trendline and hitting my max stop at 1.6325 to close out my full position for a loss:
Total: -48 pips avg. / -1.00% loss on 1.00% risk taken
Looking back, I definitely didn’t expect the market to turn like that, even with another round of bad U.S. unemployment claims data. The market had largely ignored the underlying economic conditions to focus on the “reopening trade,” so it was really a surprise when the markets turned negative last week.
Other than that, I think it was a good setup trade that just didn’t work out this time. Looking forward, I think I may flip bullish on EUR/AUD if fears and uncertainty continue to grow, and if traders continue to price in better time ahead for Europe now that the ball is rolling on the EU recovery fund.
Stay tuned for that 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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Read more about this trade idea's development over time.
This week I’m taking a shot on EUR/AUD on a classic technical setup, to play potential volatility from upcoming European business sentiment data.
Took a hit on my EUR/AUD idea last week as the market swiftly went risk-off & the euro found support on improving sentiment data. Here’s a quick review.
Wednesday, September 18, 2019