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Analysis
The fundamental backdrop supports being short, with concerns about the recent ruling from the German Constitutional Court likely to keep the EUR offered. As is the case with raging equity markets, which still have upside if you look at positioning and this suggests funding currencies will remain under pressure.
I lay out the bullish case for equities in this article - However, equities look solid as I lay out here.
In the video, I lay-out the trade rationale, with a focus on the technical set-ups in the US500, AUDUSD and EURAUD, which in my view all suggest a probability of further AUD outperformance. By way of managing risk, trailing a stop to exit only when price closes above the 5-day EMA seems tactically prudent. Because if this pair cracks it could resume its bear trend and the short-term average should define this move.
The risks
Like any discretionary trade, the potential risks can be considered ahead of the entry. I am running an impulsive trending stop; in case we see a failed break and a reversal in price. A reversal in equity sentiment would certainly promote short covering, and maybe that plays out through renewed concerns of a COVID-19 spread once economies open. Perhaps it’s a factor to do with liquidity, with a raft of Fed speaker due this week the catalysts are there.
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