This is the second time that I have done this trade recently. I first sold GBP/AUD when the price broke out to the downside from its trading range. I took profits near the top of that breakout, before the market moved quickly back to test the breakout level. The level seems to be holding, so I have shorted it again. This is a play on continued high commodity prices. The AUD fell back after China announced a degree of monetary tightening, but that tightening is not enough to undo the effects of China’s huge liquidity expansion. As long as China keeps growing — which is, after all, the government’s objective — its demand for commodities should remain high, and that should support the Australian economy, meaning that the expected series of interest rate hikes from the RBA comes through and the currency goes up. I am encouraged that the Chinese news did not undo the downside breakout, so have gone back into the trade.

The levels marked show the resistance level and approximate stop loss level. Entry point was just below the latest price shown on the chart. Risk per trade is still running at 25bps. Chart from IG Index.

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