Trade of the week: long AUD/USD
Explore the strategic setup for going long on AUD/USD, with insights into entry points, stop-loss levels, and market context, focusing on risk-reward optimisation.
Current trade overview: long AUD/USD
This week's trading focus is on the foreign exchange (forex) market, specifically targeting AUD/USD currency pair. Despite recent volatility, a long-term bearish outlook on the United States (US) dollar suggests its recent strength may be fading. The strategy is to capitalise on the potential weakening of the US dollar and the strengthening of the Australian dollar.
Trade setup
- Entry point: long AUD/USD at $0.6225
- Stop loss: set below February's low of $0.6080
- Target: set around $0.68, aiming to capture gains as AUD/USD strengthens
Risk-reward ratio
The trade is structured to balance risk and reward effectively, ensuring that potential profits outweigh potential losses.
Market context
Recent patterns in other currency pairs, such as GBP/USD and EUR/USD, show bottoming formations, indicating potential upward trends. This supports the strategy of going long on AUD/USD. The market context includes a long-term bearish view on the US dollar, despite its recent volatility influenced by economic factors and geopolitical events.
Previous trade outcomes
Reflecting on past trading outcomes is essential for learning and growth. Last month's identified opportunities included short positions on the volatility index (VIX), USD/JPY, and the US Tech 100. These trades could have been highly profitable but were not executed due to a strategy of waiting for minor bounces to minimise risk. This experience underscores the importance of timing and execution in trading, as opportunities can be missed while waiting for ideal conditions.
Cautionary note: while this trade presents a structured opportunity, market conditions can change rapidly. Traders are advised to consider their risk tolerance and market outlook before engaging in this trade, particularly as it moves counter to the prevailing long-term trend.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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