FxWirePro: AUD/USD Interim Bulls Exhausted Again At Channel & Stiff Resistance – Trading and Hedging Setup

Technical chart and candlestick patterns: AUDUSD short-term trend has been sliding through descending channel (refer daily chart). Shooting stars and spinning top patterns have popped up at 0.6893 and 0.6884 levels respectively to signal weakness at the channel resistance. Consequently, the pair has shown the exhaustiveness in the interim upswings. The bulls attempt to bounce back but restrained at this juncture several times in the recent past.

As both leading oscillators (RSI & Stochastic curves) show the overbought pressures to the prevailing resistance signal the fading strength in the previous minor upswings and intensified bearish momentum, more slumps likely upon failure swings. 

On a broader perspective, the double top formation with the 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. 

The major trend attempts to bounce back but 21-EMA caps upswings, every attempts of upswings are restrained below 7 & 21-EMA levels. The major downtrend remains intact as both lagging indicators bearish bias.

Fundamentally, the outlook for China and its trade conflict with the US remain important drivers for the Aussie dollar. A more relaxed situation on the trade war front, improved risk sentiment, and the more confident stance of the central bank have helped the currency to gain back ground. However, we expect AUDUSD to generally drift in sideways to bearish swings as the macro risks remain intact. Hence, it is wise to stay hedged using below strategy.

Trade tips: On trading perspective, at spot reference: 0.6889 levels, contemplating above technical rationale, it is advisable to execute boundary options strategy with upper strikes at 0.6932 and lower strikes at 0.6833 levels, thereby, one can fetch certain yields as long as the underlying spot FX remains between these two strikes on the expiration.

Alternatively, on hedging grounds we advocated shorting futures contracts of mid-month tenors, we wish to uphold the same strategy as the underlying spot FX likely to target southwards below 0.67 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.