The Risk/Reward in the AUD/USD Looks Good Right Now
Rowan Crosby • 2 min read
The Aussie has been one of the most active trades of recent time as it is copping it from all angles at the moment.
It has been the key risk-on trade and benefits anytime we see positive news on the trade wars and conversely when things are negative.
At the same time the AUD has been very bearish lately thanks to the RBA slashing rates and hinting that there are more cuts on the way ‘if needed.’
So at this point in time everything is very much bearish for the AUD/USD on a fundamental level.
However, it is the technicals that make this an interesting proposition at the moment.
The 0.6800 level has been massive for the Aussie at the moment. Price simply cannot break through it at this point in time. So much so that we currently have an open signal at the moment to the short side.
When we get big levels like this I love to use them to generate trade ideas. In this case the risk/reward is really good for us on a short.
We can risk of the highs at 0.6820 and our downside is likely the lows. So if we sell any pullbacks near the 0.6800 level we are sitting on a pretty good risk/reward.
At the same time, we also have a great opportunity to the long side if we are nimble. When a level keeps on holding, more and more shorts pile in. So we have to assume that if 0.6800 breaks and currently if 0.6820 breaks then we are going to a quick move higher.
We might call this a short squeeze as the shorts are trapped.
However, we can use this to our advantage. If we are ready and waiting we can get set on a long and ride the squeeze. It would likely run into the 0.6900 level. The biggest risk here would be the squeeze not following through. So that is the risk.
Either way, the risk/reward in both spots is good and in our favour.