In life and in trading it’s always best to stick to the plan.
Ahead of Australian CPI I wrote a preview and talked about how to trade AUD/USD:
There is some chatter about Stevens comments yesterday (or lack thereof). He said nearly nothing — is that a sign that inflation numbers were high and he didn’t want to whipsaw AUD traders by jawboning?. Or is it a sign that he’s confident the market will do the work for him on a soft inflation report?
I lean to Option 1 but that’s hardly the basis for a trade.
The technicals don’t tell us much. At 0.9394, AUD/USD is smack in the centre of the six-week range of 0.9322 to 0.9505. In the longer-term we climbed above the 61.8% retracement of the Oct-Jan decline. AUD/USD has also remained above the 55-dma. Together that points to some gains but the signal isn’t strong enough to risk a soft CPI headline.
I like going with the headline on a miss, especially if it’s significant. Keep a close eye as we get to the range extremes and add on a breakout or cut it if the momentum fades and the 0.9400 magnet kicks in again.
That strategy would have played out well. Even if you wailed to catch the initial move there was time to get in from 0.9417 to 0.9430 and the pair has climbed to 0.9450 since. That 20-40 pips isn’t a fortune but it’s a decent day’s work if done right.
A few thoughts after the report:
- CPI wasn’t really that strong but AUD/USD is 65 pips above pre-report levels, that tells me the market was wrong-footed
- Unless there is some type of shock, a rate cut isn’t coming
So what to do with the trade? The gameplan was to cut the trade if we got to the top of the range and then it struggled to break out. We’re at the sticky 0.9461 level and 0.9500 looms behind that. I like taking a bit off the table here and adding more if/when 0.9505 breaks.
AUD/USD daily
