My picks: Short GBPAUD
Expertise: Combining money management with fundamental and technical analysis
Average Time Frame of Trades: 3 days - 1 week
The commodity bloc has been very active over the past week. First, the trio of currencies (Australian, New Zealand and Canada dollars) has marked a gradual but consistent retracement. This morning, however, we have seen all these export-heavy currencies print a sharp rally. This back and forth has shaken many of the crosses; but my NZDUSD position from last week reported a tempered reaction to the sharp reversal. I'm still short half a normal size position in this pair from 0.6080 with a stop that has been moved up to break even (the first half has already taken profit equal to the risk taken on the initial outlay.
I am carrying over no risk from exposure to the commodity bloc (my CADJPY setup from Friday has already hit the first target and adjusted the stop on its second half); so now any position taken will reestablish a bias. Most trends from this group at this point are up in the air (long-term bearish, medium-term bullish, short-term bearish); so I need to be conscious of fundamentals, positioining and timing. To help account for all three factors, I'll look to GBPAUD. Fundamentally, the Australian economy has a significant yield advantage and is far more stable than its British counterpart. For positioning, we are just coming off a test of the falling trendline that begins with the Oct 8th swing high - a technical level that coincides with long-term range lows (May 2008 to May 2009) around 2.0225. This is a former support standing in as new resistance for a highly volatile pair. Considering the chop we have seen for the past few months, the long-term technicals at play and the clear fundamental bias; it is obvious that this is a setup that should play out over time. I will look for a place to get in short near 2.0225, set a stop well above the falling trend, and set my first target to breakeven as always. My position sizing will adjust for the width of the stop so that notional risk is reasonable.
