FxWirePro: AUD/JPY minor trend develops ascending wedge, major trend in head and shoulder pattern – Trading and hedging setup

AUDJPY minor trend has been travelling through rising wedge pattern, while the interim bulls have extended the upswings from December lows of 73.825 levels upon wedge support as they bounce above DMAs, (refer daily plotting). But from the last 3-4 days, bears are attempting to nudge below 7-DMAs.

For now, more price slumps are likely as both the leading and lagging oscillators are in bears’ favour. The selling sentiments are intensified as both the momentum oscillators signal overbought pressures. RSI and Stochastic curves were showing upward convergence but for now reversed to indicate the faded strength in the minor uptrend. 

On a broader perspective, head and shoulder pattern has occurred on the major downtrend with head at 105.433, shoulder 1 at 90.027 and shoulder 2 at 90.305 levels (refer monthly chart).

Bears, in the major downtrend, disregard hammer formation at strong support (occurs at 79.160 levels), downtrend likely to extend upon the head and shoulder pattern. While RSI, stochastic curves, DMA and MACD are bearish bias on this timeframe also.

Trade tips:

Considering all the above technical rationale, on trading grounds, at spot reference: 74.885 levels, one can think of trading one touch put options with lower strikes of 74.385 levels.

Overall, as we could foresee further downtrend in the months to come, on hedging grounds we advocate shorting futures contracts of mid-month tenors ahead of BoJ’s monetary policy that is scheduled for this week, as the underlying spot FX likely to target southwards below 72.007 levels in the medium run. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.