Flipping Side on AUD/JPY

Trade Idea: 2013-02-28 01:20

Some things just make sense. Peanut butter and jelly, steaks and beer, rabbit ears and gravy, and this trade on AUD/JPY.

Fundamentally speaking, there’s a lot weighing down the Aussie. Early next week, we have the RBA rate statement, and word on the street is that there’s a chance the central bank could cut interest rates. It’s kind of hard imagining the Aussie gaining much ground in the coming days with that sort of outlook bearing down on the currency.

Also, we just got word that there was a surprise drop in business investment last quarter, largely because mining companies cut back on spending. With the mining industry peaking, there has become a pressing need for other sectors to shoulder overall economic growth. Again, another reason for the RBA to keep things dovish next week.

As for technicals, we see that AUD/JPY is right smack in the middle of the 38.3%-50.0% correction zone, which is no stranger to reversals. With a bearish divergence already in the cards, I didn’t hesitate to pull the trigger and sell at market:

Sold AUD/JPY at market (94.89), stop loss at 95.69, profit target at 93.20.

I set my stop just above the support/resistance kill zone, and I’m aiming for the previous low. If everything goes according to plan, I should bag over 1% with a return on risk of over 2:1.

What do you think of this trade? Anyone else out there shorting a yen cross? Hit me up with your thoughts and comments below!