Australian currency traders sometimes refer to the local currency as “the little Aussie battler”. This is a compliment. As Aussies know, a “battler” is an average person who works hard to improve their lot despite outrageous fortune, while maintaining a cheerful and optimistic outlook. However, times are looking tough for the AUD.

The Federal government has just issued its annual budget. While increasing overall spending, it re-directs funds away from individuals towards productive investment. It is viewed as a fiscal tightening, at least in the short term. This may mean a longer period of “sustained interest rate stability” from the RBA, and along with an ongoing decline in Australia’s terms of trade is contributing to AUD selling.

The case for a stronger USD is well established, if somewhat over anticipated. Looking at both sides of the pair, there is a fundamental argument for a lower AUD/USD. The technical picture offers a potential trade set up:

chart of audusd

This week, AUD/USD broke the up-trend in place since mid-January. The MACD crossed, and the widening gap suggests increasing selling momentum. A breach of support at 0.9200 is likely an indicator of a new downtrend, and a useful line in the sand for traders.

I’ll place a sell order (a stop entry order) at 0.9190, with a stop loss at 0.9228. The 61.8% retracement of the 2014 up move is around 0.8965 – my target. This gives a reward to risk ratio in pips of 125:38, or better than 3:1, suitable for my trading plan:trade ticketNote the boundary settings. The downward pointing arrow to the left of "Stop Entry" indicates the order will be triggered by the sell price hitting 0.9190. I've given this trade a boundary price of 0.9187 as I want to be sure of trading should the failing support produce a sharp move.