FxWirePro: AUD/USD failure swings at wedge resistance with hanging man and most likely shooting star – Trade boundary strikes and short hedge

Technical chart and candlestick patterns: AUDUSD has formed a wedge pattern in the minor trend. The pair’s recent upswings are exhausted at wedge resistance, with hanging man at 0.7118 and shooting star at 0.7120 levels (refer daily plotting). Failure swings are observed at this wedge resistance coupled with these bearish patterns signal weakness despite the current prices remain well above DMAs with bullish crossover.

For now, the extension of rallies seems likely only upon break-out above resistance. While all technical indicators are still in bull’s favor. 

In addition to that, this bearish pattern is coupled with a broader perspective: The major trend of this pair has been extending double top formation with breach below neckline and may head towards 1 and a half year lows (refer monthly plotting), bearish engulfing candle followed by shooting star patterns plummet prices well below 7EMA again on this timeframe. Attempts of upswings are restrained below 21-EMA levels.

Both RSI and stochastic curves have signaled faded strength and indecisiveness.

While bearish MACD and EMA crossovers substantiate the bearish sentiments and indicate downtrend to prolong further.

Trade tips: On trading perspective, at spot reference: 0.7118 levels, contemplating above technical rationale, it is advisable to execute boundary strike options strategy with upper striking options at 0.7135 and lower short lower strikes at 0.7090 levels, thereby, one can achieve certain yields as long as the underlying spot FX remains well in between these two strikes on the expiration.

Alternatively, on hedging grounds ahead of RBA’s monetary policy and Caixin manufacturing PMI data, we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards below 0.69 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.

Currency Strength Index: FxWirePro's hourly AUD spot index is inching towards -26 levels (which is mildly bearish), while hourly USD spot index was at 65 (bullish) while articulating (at 05:25 GMT). These indices are also conducive for the above short set-up.

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex