FxWirePro: AUD/USD bears’ upper hand on descending channel and double top patterns – Trading and hedging setup

Technical chart and candlestick patterns: AUDUSD short-term trend has been sliding through descending channel (refer daily chart). Shooting stars patterns have popped up at 0.6893 levels (refer circular area) to signal weakness at the channel resistance. Consequently, the pair has shown the failure swings below DMAs. The bulls attempt to bounce back but restrained below 7DMA levels.

As both leading oscillators (RSI & Stochastic curves) show the downward convergence to the prevailing slumps signal the strength in downtrend and intensified bearish momentum, more slumps likely upon bearish DMA crossover. 

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.

Trade tips: On trading perspective, at spot reference: 0.6775 levels, contemplating above technical rationale, it is advisable to execute boundary options strategy with upper strikes at 0.68 and lower strikes at 0.6744 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 ahead of RBA’s monetary policy that is scheduled for this week, 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 0.65 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.