FxWirePro: AUD/USD Descending Channel Suggests Renewed weakness – Trading And Hedging Setup

Technical chart and candlestick patterns: AUDUSD minor trend has been sliding through sloping channel (refer daily chart). Shooting stars have occurred at channel resistance (refer circular area), the bearish pattern candles have occurred at 0.6893 levels. 

As a result, the bears have resumed at that juncture, and the price has slid below DMAs with bearish crossover.

While both the leading oscillators (RSI & Stochastic curves) show downward convergence to the prevailing price slumps to signal intensified selling momentum. 

On a broader perspective, bulls, in the recent months, attempt to bounce back but 7-EMA caps upswings. The double top formation with breach below neckline has been extending the major downtrend of this pair and hit 10 year lows at 0.6675 areas (refer monthly plotting), in the recent past, bearish engulfing candles followed by shooting star patterns plummet prices well below 7EMA again on this timeframe. 

Overall, the major downtrend remains intact as both leading and lagging indicators are bearish bias.

Trade tips: On trading perspective, at spot reference: 0.6815 levels, contemplating above technical rationale, it is advisable to execute tunnel spread options strategy with upper strikes at 0.6850 levels and lower strikes at 0.6769 level, thereby, the leverage effects are possible in the yields as long as the underlying spot FX keeps sliding on the expiration.

Alternatively, on hedging grounds ahead of RBA’s monetary policy that is scheduled for the next week, we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards below 0.66 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.